The Effect of Liquidity Constraints on Labor Supply: Evidence from Interest Rate Ceilings

Kabir Dasgupta and Brenden J. Mason
Additional contact information
Kabir Dasgupta: https://www.federalreserve.gov/econres/kabir-dasgupta.htm

No 2025-110, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We exploit the spatiotemporal variation in US states’ interest rate ceilings on small-dollar loans to identify the effect of liquidity constraints on labor supply. Exogenously-capped interest rates lead to consumers being shut out of the market for cash loans. In response, labor supply increases by approximately 0.4 hours per week. We also find that the propensity to take personal leaves decreases. Labor supply, therefore, is used to overcome financial constraints, but is not the only method: the effect on earnings is less than many small-dollar loans, suggesting that borrowers employ multiple mechanisms to cope with tightened credit conditions.

JEL-codes: D15 G23 G50 J22 (search for similar items in EconPapers)
Pages: 50 p.
Date: 2025-12-22
New Economics Papers: this item is included in nep-lma
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2025110pap.pdf Full text (application/pdf)

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:fip:fedgfe:102370

DOI: 10.17016/FEDS.2025.110

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().