Economics at your fingertips  

Debt Constraints and the Labor Wedge

Patrick Kehoe (), Virgiliu Midrigan and Elena Pastorino ()

American Economic Review, 2016, vol. 106, issue 5, 548-53

Abstract: Changes in household debt and employment across regions of the U.S. during the Great Recession are highly correlated: regions where the decrease in household debt was most pronounced were also regions where the decline in employment was most severe. We show that the drop in employment in the regions that have experienced the largest decrease in household debt is mostly accounted for by changes in the labor wedge (deviations from a static consumption-leisure choice) as opposed to changes in real wages. We argue that such a pattern is consistent with fluctuations in debt constraints in a standard Bewley-Aiyagari model.

JEL-codes: D14 E24 E32 G01 J22 J31 R23 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161088
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link) (application/pdf) ... hzZRAoNsOPOW7jSuq4ms (application/zip) (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().

Page updated 2023-03-26
Handle: RePEc:aea:aecrev:v:106:y:2016:i:5:p:548-53