How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output

Kyle Herkenhoff, Gordon Phillips and Ethan Cohen-Cole ()
Additional contact information
Ethan Cohen-Cole: Econ One Research

No 2017-012, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: How does access to consumer credit affect the allocation of workers to firms, and what happens to sorting and the subsequent recovery if credit tightens during a recession? To answer this question, we develop a labor sorting model with saving and borrowing. We show that even with two-sided heterogeneity and risk aversion, the model remains tractable because it admits a unique block recursive solution. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low-productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms. We then build a new administrative dataset that merges credit reports with employment histories, and we test the model's mechanisms.

Keywords: sorting model; credit constraints; block recursive; self-insurance (search for similar items in EconPapers)
JEL-codes: E13 E20 E24 E32 J21 J24 J31 J60 J63 J64 J65 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-upt
Note: M
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://humcap.uchicago.edu/RePEc/hka/wpaper/Herken ... aint-job-finding.pdf First version, February 6, 2017 (application/pdf)

Related works:
Working Paper: How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output* (2016)
Working Paper: How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output (2016)
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:hka:wpaper:2017-012

Access Statistics for this paper

More papers in Working Papers from Human Capital and Economic Opportunity Working Group Contact information at EDIRC.
Bibliographic data for series maintained by Jennifer Pachon ().