Household debt and labour market fluctuations

Javier Andrés (), José Boscá and Javier Ferri

No 1129, Working Papers from Banco de España

Abstract: The co-movements of labor productivity with output, total hours, vacancies and unemployment have changed since the mid 1980s. This paper offers an explanation for the sharp break in the fl uctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation. Our exercise shows that the dynamic pattern of the labor market variables might have been substantially affected by the increase in household leverage in the US in the last twenty years. We set up a search model with effi cient bargaining and fi nancial frictions, in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings. When borrowers’ equity requirements are low, the impact of a positive technology shock on the marginal utility of consumption is strengthened, which in turn results in lower hours per worker and higher wages in the bargaining process. This shift in labor supply discourages fi rms from opening vacancies, reducing the impact of the shock on employment.

Keywords: business cycle; labor market; borrowing restrictions (search for similar items in EconPapers)
JEL-codes: E24 E32 E44 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-11
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /11/Fich/dt1129e.pdf First version, November 2011 (application/pdf)

Related works:
Journal Article: Household debt and labor market fluctuations (2013)
Working Paper: Household Debt and Labor Market Fluctuations (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1129

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