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How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output*

Kyle Herkenhoff, Gordon Phillips and Ethan Cohen-Cole

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We empirically and theoretically examine how consumer credit access affects dis- placed workers. Empirically, we link administrative employment histories to credit reports. We show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take .15 to 3 weeks longer to find a job. Conditional on finding a job, they earn more and work at more productive firms. We develop a labor sorting model with credit to provide structural estimates of the impact of credit on employ- ment outcomes, which we find are similar to our empirical estimates. We use the model to understand the impact of consumer credit on the macroeconomy. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low- productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms.

New Economics Papers: this item is included in nep-dge
Date: 2016-01
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https://www2.census.gov/ces/wp/2016/CES-WP-16-25.pdf First version, 2016 (application/pdf)

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