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The Financial Labor Supply Accelerator

Jeffrey Campbell () and Zvi Hercowitz ()

No 275756, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: When minimum equity stakes in durable goods constrain a household's debt, a per- sistent wage increase generates a liquidity shortage. This temporarily limits the income eect, so hours worked grow. This is the nancial labor supply accelerator, which links labor supply decisions to limits on household borrowing. This paper examines its implications for the comovement of hours worked and household debt by compar- ing model-generated data with evidence from the PSID. The drastic deregulation of household debt markets in the early 1980s eectively reduced required equity stakes in durable goods. Since then, the estimated regression eect of mortgage debt on hours worked, interpreted as comovement rather than causality, has dropped dramatically. Analogous estimates from model-generated data display a quantitatively comparable fall after a calibrated reduction in equity requirements.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 24
Date: 2009-06
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Working Paper: The financial labor supply accelerator (2011) Downloads
Working Paper: The Financial Labor Supply Accelerator (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275756

DOI: 10.22004/ag.econ.275756

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