How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output
Kyle Herkenhoff (),
Gordon Phillips and
Ethan Cohen-Cole ()
Additional contact information
Kyle Herkenhoff: University of Minnesota
Gordon Phillips: Dartmouth College Tuck School of Business
Ethan Cohen-Cole: Econ One Research
No 2017-012, Working Papers from Human Capital and Economic Opportunity Working Group
How does access to consumer credit affect the allocation of workers to firms, and what happens to sorting and the subsequent recovery if credit tightens during a recession? To answer this question, we develop a labor sorting model with saving and borrowing. We show that even with two-sided heterogeneity and risk aversion, the model remains tractable because it admits a unique block recursive solution. 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. We then build a new administrative dataset that merges credit reports with employment histories, and we test the model's mechanisms.
Keywords: sorting model; credit constraints; block recursive; self-insurance (search for similar items in EconPapers)
JEL-codes: E13 E20 E24 E32 J21 J24 J31 J60 J63 J64 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-upt
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http://humcap.uchicago.edu/RePEc/hka/wpaper/Herken ... aint-job-finding.pdf First version, February 6, 2017 (application/pdf)
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