The financial labor supply accelerator

Jeffrey Campbell and Zvi Hercowitz ()

No WP-2011-05, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: The financial labor supply accelerator links hours worked to minimum down payments for durable good purchases. When these constrain a household's debt, a persistent wage increase generates a liquidity shortage. This limits the income effect, so hours worked grow. The mechanism generates a positive comovement of labor supply and household debt, the strength of which depends positively on the minimum down-payment rate. Its potential macroeconomic importance comes from these labor supply fluctuations' procyclicality. This paper examines the comovement of hours worked and debt at the household level with PSID data before and after the financial deregulation of the early 1980s which reduced effective down payments and compares the evidence with results from model-generated data. The household-level data displays positive co-movement between hours worked and debt, which weakens after the financial reforms. An empirically realistic reduction of the model's required down payments generates a quantitatively similar weakening.

Keywords: Labor supply; Wages; Hours of labor - Mathematical models (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.chicagofed.org/digital_assets/publicati ... s/2011/wp2011_05.pdf (application/pdf)

Related works:
Working Paper: The Financial Labor Supply Accelerator (2009)
Working Paper: The Financial Labor Supply Accelerator (2009)
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:fedhwp:wp-2011-05

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().