The Labor Market Effects of Credit Market Information

Bos, Marieke; Breza, Emily; Liberman, Andres

doi:10.1093/rfs/hhy006

Cited by 84 publications

(57 citation statements)

References 43 publications

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“…Our paper contributes to several literatures, including the theoretical and empirical literature on credit constraints and startup rates, cited on the first page of the introduction. Of particular note is the concurrent, independent, and innovative work by Bos et al [2015] and Dobbie et al [2016]. Bos et al [2015] focus on the way delinquencies, i.e.…”

mentioning

confidence: 99%

The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship

Herkenhoff¹,

Phillips²,

Cohen-Cole³

2016

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How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemploymentinsured "formal" jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities.

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confidence: 99%

The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship

Herkenhoff¹,

Phillips²,

Cohen-Cole³

2016

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“…Our paper is also related to several recent papers that study the interactions between the labor market and the credit markets, especially via the use of credit market information, e.g., Bos, Breza, and Liberman (2018); Herkenhoff (2018); 7 Herkenhoff, Phillips, and Cohen-Cole (2016); and Dobbie, et al (2016). The most relevant comparison is Bos, Breza, and Liberman (2018), who study a regulatory change in Sweden that removed negative information (bankruptcy, defaults) from some borrowers' credit reports. They find that this change led to higher employment rates for the affected groups.…”

Section: Literature Reviewmentioning

confidence: 95%

The Unintended Consequences of Employer Credit Check Bans for Labor Markets

Cortés¹,

Glover²,

Tasci

2019

Working Paper (Federal Reserve Bank of Cleveland)

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“…As noted earlier, the existing literature focuses on the effect of restricting credit report information on people who either are likely to suffer from bad credit (and may benefit from the law) or who may resemble those who do (and may be harmed by the law data on exactly who has bad credit and focus on the disappearance of old information from credit reports. The evidence suggests little to no effect on employment when bankruptcy information that is quite old disappears in the U.S. (Dobbie, Goldsmith-Pinkham, Mahoney & Song 2016, Herkenhoff, Phillips & Cohen-Cole 2016, and substantial positive effects on pawnshop borrowers in Sweden when the information is more recent (Bos, Breza & Liberman 2016).…”

Section: Introductionmentioning

confidence: 98%

“…Papers focusing on possible beneficiaries differ in how precisely they can pinpoint such groups. Some papers analyze the effect of negative credit information dropping off of credit reports after a fixed duration of time and find mixed evidence of labor market effects (Dobbie et al, 2016, Herkenhoff, Phillips, and Cohen-Cole, 2016, Bos, Breza, and Liberman, 2016.…”

Section: Introductionmentioning

confidence: 99%

“…Dobbie, Goldsmith-Pinkham, Mahoney & Song (2016),Herkenhoff, Phillips & Cohen-Cole (2016),and Bos, Breza, and Liberman (2016) follow individuals over time in administrative data;Doleac & Hansen (2016) andBartik & Nelson (2016, for some of their results) follow individuals in the CPS, although the CPS is designed to follow housing units rather than individuals. Clifford & Shoag (2016, for their main results) andBartik & Nelson (2016, for their main results) use different aggregates of LEHD data that report worker and job flows by geographic location but do not follow the individuals over time.…”

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confidence: 99%

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Essays on Consumer Credit Markets and Debtor Protections

Pattison

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This thesis studies the costs, benefits, and welfare impact of laws that protect debtors when they default. The first chapter evaluates the welfare impact of one of the main debtor protections in the United States: asset exemptions. Asset exemptions shield debtors' assets from seizure by unsecured creditors, and so provide insurance that increases consumption when debtors default. This default insurance is financed by higher interest rates when debtors repay. I derive a sufficient statistic formula for the welfare impact of increasing exemptions, which captures the benefits to debtors who default either in or out of bankruptcy. I then estimate the key components of the formula. First, using the PSID, I estimate the change in consumption that occurs when debtors default, which determines debtors' willingness to pay for default insurance. The estimated 5.5% consumption drop upon default implies that debtors are willing to pay, at most, 16.5% over the actuarially fair rate for default insurance. Second, using credit union data and changes in state exemption levels, I show that higher exemptions increase interest rates and decrease recoveries on charged-off debt. The estimates imply that exemptions generate default insurance, but the higher interest rates are marked up 320% over what is actuarially fair. Ultimately, since the actual markup substantially exceeds what debtors are willing to pay, lower exemptions would increase welfare. The second chapter investigates whether borrowers file more bankruptcies when asset exemption are higher. A higher exemption makes bankruptcy more attractive, but also reduces the supply of credit, so the equilibrium effect on bankruptcy filings is uncertain. The reduced-form literature finds conflicting evidence, generally using cross-sectional variation in exemptions across states. I use panel variation in exemptions, combined with state-and county-level data on bankruptcies, and find that a median-sized exemption increase raises Chapter 7 bankruptcy rates by 3-7%. Event study regressions show that bankruptcy rates rise immediately after an exemption increase and remain high for at least six years, so it is i Bibliography 136 v Chapter 1 Consumption Smoothing and Debtor Protections 1 Stavins (2000) reports that 8.5% of households have filed for bankruptcy, and more recently, Dobbie et al. (2016) reports that 15% of individuals have filed for bankruptcy based on their calculations in the Federal Reserve Bank of New York's Consumer Credit Panel/Equifax Data. VISA reports that 55-60% of charge-offs occur without a bankruptcy filing (NBRC, 1997). 2 The $100 billion in interest rate payments, reported in Akerlof and Shiller (2015), is obtained by multiplying the total credit card debt in 2009 (886 billion) by the average interest rate on revolving credit (0.134).

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The Labor Market Effects of Credit Market Information

Cited by 84 publications

References 43 publications

The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship

The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship

The Unintended Consequences of Employer Credit Check Bans for Labor Markets

Essays on Consumer Credit Markets and Debtor Protections

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