IDEAS home Printed from https://ideas.repec.org/a/fip/fedreq/y2008iwinp17-44nv.94no.1.html
   My bibliography  Save this article

Credit access, labor supply, and consumer welfare

Author

Listed:
  • Kartik B. Athreya

Abstract

Recent evidence suggests that households' access to credit has improved. If households can vary labor supply in response to stochastic productivity shocks, changes in credit markets can be expected to alter not only savings and borrowing behavior, but also labor effort. The purpose of this article is to take a step toward understanding how changes in the ability of households to borrow alter the behavior of consumption, saving, and leisure. The main results are as follows. First, the hardest working households are those who are least wealthy, and most strikingly, also the least productive. Second, credit access can play an important role in reducing high labor effort by low-productivity households. Third, the buffer-stock tendencies of households imply that the distance from the borrowing constraint is often more important that the actual level of wealth in influencing labor effort. Fourth, measures of the welfare gains to current consumers show that there are significant benefits from expansions in credit access, and that these gains accrue disproportionately to the relatively poor and relatively rich.

Suggested Citation

  • Kartik B. Athreya, 2008. "Credit access, labor supply, and consumer welfare," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 17-44.
  • Handle: RePEc:fip:fedreq:y:2008:i:win:p:17-44:n:v.94no.1
    as

    Download full text from publisher

    File URL: http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2008/athreya.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, pages 2621-2635.
    2. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387 National Bureau of Economic Research, Inc.
    3. Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, pages 613-631.
    4. Joseph Zeira, 2000. "Informational overshooting, booms and crashes," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
    5. Edelberg, Wendy, 2006. "Risk-based pricing of interest rates for consumer loans," Journal of Monetary Economics, Elsevier, pages 2283-2298.
    6. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, pages 373-396.
    7. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
    8. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, pages 609-633.
    9. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2011. "A quantitative theory of information and unsecured credit," Working Paper 08-06, Federal Reserve Bank of Richmond.
    10. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    11. Martin Floden & Jesper Lindé, 2001. "Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 406-437, July.
    12. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
    13. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    14. Kjetil Storesletten & Chris Telmer & Amir Yaron, 2007. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, pages 519-548.
    15. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2012. "A Quantitative Theory of Information and Unsecured Credit," American Economic Journal: Macroeconomics, American Economic Association, pages 153-183.
    16. Aiyagari, S. Rao & McGrattan, Ellen R., 1998. "The optimum quantity of debt," Journal of Monetary Economics, Elsevier, pages 447-469.
    17. repec:spo:wpecon:info:hdl:2441/8623 is not listed on IDEAS
    18. Seema Jayachandran, 2006. "Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 538-575, June.
    19. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
    20. Yongsung Chang & Sun-Bin Kim, 2005. "On the aggregate labor supply," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 21-37.
    21. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
    22. Kartik B. Athreya, 2004. "Shame as it ever was : stigma and personal bankruptcy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-19.
    23. Seshadri, Ananth & Yuki, Kazuhiro, 2004. "Equity and efficiency effects of redistributive policies," Journal of Monetary Economics, Elsevier, pages 1415-1447.
    24. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, pages 609-633.
    25. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2012. "A Quantitative Theory of Information and Unsecured Credit," American Economic Journal: Macroeconomics, American Economic Association, pages 153-183.
    26. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Credit ; Labor supply;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedreq:y:2008:i:win:p:17-44:n:v.94no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Pascasio). General contact details of provider: http://edirc.repec.org/data/frbrius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.