Labor Market Shocks and Consumer Finance: evidence from Brazil

Gabriel Garber, Carlos Ladeira and Renata Narita

No 649, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper studies the effect of short-lived job displacement on individuals’ labor and credit market outcomes. Using Brazil as a laboratory, we link credit registry data to employment data to track those individual outcomes. Our difference-in-difference estimates show that workers who experience a permanent income loss delever and default following job loss. In contrast, workers who face a transitory income decline maintain their consumption, as they borrow in anticipation of the upcoming job loss while also defaulting on their debt. Moreover, these workers continue to increase their loan balances even after reemployment and full wage replacement, in part because they obtain better job contracts.

Date: 2026-08
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