The Debt Burden of Job Loss in a Nordic Welfare State

Terhi Maczulskij, Ohto Kanninen (), Hannu Karhunen () and Ossi Tahvonen ()
Additional contact information
Ohto Kanninen: LABORE Labour Institute for Economic Research
Hannu Karhunen: LABORE Labour Institute for Economic Research
Ossi Tahvonen: University of Helsinki

No 17940, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using linked employer-employee data combined with administrative data on debt enforcement, we analyze the impact of job loss on debt problems in Finland, where even 50% of income may be subject to wage garnishment for up to 25 years. Our results show that job loss, defined by plant closures and mass layoffs, increases the incidence of enforced debt by approximately 10%, with the effect persisting for at least a decade. The impact is particularly large for unpaid taxes and various private debts, such as installment purchase payments. Moreover, the effects are stronger among individuals who were already burdened with excessive overall debt, such as mortgages, before displacement. We also document spillover effects on spouses and children, indicating that job loss can have far-reaching consequences for household indebtedness. However, we find no significant effect on filing for personal bankruptcy.

Keywords: employer-employee data; involuntary job loss; debt enforcement; default; personal bankruptcy (search for similar items in EconPapers)
JEL-codes: D14 G51 J64 J65 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-eur and nep-lab
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Related works:
Working Paper: Debt Burden of Job Loss in a Nordic Welfare State (2024)
Working Paper: Debt Burden of Job Loss in a Nordic Welfare State (2024)
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