How Credit Constraints Impact Job Finding Rates, Sorting, and Aggregate Output

Kyle Herkenhoff, Gordon Phillips and Ethan Cohen-Cole

The Review of Economic Studies, 2024, vol. 91, issue 5, 2832-2877

Abstract: How do consumer credit markets affect the allocation of workers to firms, output, and labour productivity? We address this question in two steps. First, we use new micro-data to estimate empirical elasticities of job search patterns to credit. Second, we estimate our novel theory of sorting under risk aversion to match these elasticities, and then we conduct aggregate counterfactuals. Empirically, we show that an increase in credit limits worth 10% of prior annual earnings allows individuals to take 0.33 weeks longer to find a job. Conditional on finding a job, they earn 1.85% more and work at higher paying firms. We also find that young and high-utilization individuals are more responsive to credit. Theoretically, we integrate risk aversion and borrowing into a model with worker and firm heterogeneity. We estimate the model to match our new empirical elasticities, and we then measure how the credit expansion from 1964 to 2004 affected sorting and output. Sorting improves as credit expands since constrained workers—in particular constrained, young, high human capital workers—find more capital-intensive jobs.

Keywords: Credit access; Job search; Sorting (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdad104 (application/pdf)
Access to full text is restricted to 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: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:5:p:2832-2877.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().