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Household debt and labour supply

Author

Listed:
  • Bunn, Philip

    (Bank of England)

  • Chadha, Jagjit

    (National Institute of Economic and Social Research)

  • Lazarowicz, Thomas

    (University College London)

  • Millard, Stephen

    (Bank of England)

  • Rockall, Emma

    (Stanford University)

Abstract

In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.

Suggested Citation

  • Bunn, Philip & Chadha, Jagjit & Lazarowicz, Thomas & Millard, Stephen & Rockall, Emma, 2021. "Household debt and labour supply," Bank of England working papers 941, Bank of England.
    • Handle: RePEc:boe:boeewp:0941
    as

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    References listed on IDEAS

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    Cited by:

    1. NIESR & Appendix, 2021. "Appendix," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 45-53.
    2. Mortimer-Lee, Paul & Gortz, Christoph & McGowan, Danny, 2022. "Box B: A Targeted Furlough Scheme to help the economy in downturns," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 14-16.
    3. Niesr, 2021. "Overview," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 4-5.
    4. Bhattacharjee, Arnab & Szendrei, Tibor, 2022. "Box D: National Institute Regional Modelling System (NiReMS): Methodology and Updates," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 41-44.
    5. Chadha, Jagjit S., 2022. "Foreward: bridge to normality," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 1-3.
    6. Lenoel, Cyrille & Macqueen, Rory & Mortimer-Lee, Paul & Patel, Urvish & Whyte, Kemar, 2022. "Covid-19 leaves inflation in its wake," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 5-28.
    7. Niesr, 2022. "Overview," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 1-4.
    8. Chadha, Jagjit S., 2021. "Foreward: Rip it up and Start Again," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 1-3.
    9. Basso, Gaetano & Depalo, Domenico & Lattanzio, Salvatore, 2023. "Worker flows and reallocation during the recovery," Labour Economics, Elsevier, vol. 83(C).
    10. Mortimer-Lee, Paul, 2021. "Box D: The new employment tax," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 29-31.
    11. Bhattacharjee, Arnab & Pabst, Adrian & Mosley, Max & Szendrei, Tibor, 2022. "UK Regional Outlook: Autumn 2021," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(5 Winter), pages 29-40.
    12. Bhattacharjee, Arnab & Pabst, Adrian & Mosley, Max & Szendrei, Tibor, 2022. "UK Regional Outlook: Autumn 2021," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 29-40.
    13. Kennedy, Jack, 2021. "Box C: Wage pressures: a perspective from online job advertisements," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 17-18.
    14. Mortimer-Lee, Paul & Patel, Urvish, 2022. "Box C: Gas prices and price controls," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 24-26.
    15. Dumitru, Alexandra, 2021. "Box A: The European Union's Carbon Border Adjustment Mechanism: levelling the EU carbon playing field," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 11-12.
    16. NIESR & Appendix, 2022. "Appendix," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 45-53.
    17. Bhattacharjee, Arnab & Szendrei, Tibor, 2021. "Box E: Distributional impacts of Covid-19 and potential for policy intervention," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 41-44.
    18. Mortimer-Lee, Paul, 2022. "Box A: Improved trade balance with the European Union raises challenging Brexit questions," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(1 Winter), pages 7-10.
    19. Gortz, Christoph & McGowan, Danny & Yeromonahos, Mallory, 2021. "Box B: Furlough and household financial distress during the Covid-19 pandemic - insights for future lockdowns," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 14-15.
    20. Lenoel, Cyrille & Macqueen, Rory & Mortimer-Lee, Paul, 2021. "Shortages and fiscal tightening threaten economic recovery from Covid-19," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 6-32.

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    More about this item

    Keywords

    Household debt; housing; labour supply; participation; hours worked;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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