Household Debt Composition and Labor Market Outcomes

Abstract

This paper investigates how household debt composition interacts with labor market outcomes. Using data on workers' debt portfolios linked to matched establishment-employee labor data, we document significant heterogeneity in household debt composition, with workers specializing in different loan types. Leveraging mass layoffs, we find heterogeneous labor outcomes for similar workers separating from the same firm at the same time but with different debt compositions. Individuals with collateralized debt are more likely to reemploy and, conditional on reemploying, they match faster and at higher wages. Our findings underscore the linkages between personal debt structure and labor market dynamics.

Keywords: Household debt, Debt composition, Debt overhang, Labor supply, Job search JEL Classification: D14, G51, J22, J64

JEL Classification: D14, G51, J22, J64