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The Labor Market Effects of Credit Market Information

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  • Marieke Bos
  • Emily Breza
  • Andres Liberman

Abstract

We exploit a natural experiment to provide one of the first measurements of the causal effect of negative credit information on employment and earnings. We estimate that one additional year of negative credit information reduces employment by 3 percentage points and wage earnings by ${\$}$1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. Further evidence suggests this cost of default is inefficiently borne by those most creditworthy among previous defaulters. Received April 5, 2017; editorial decision September 2, 2017 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web Site next to the link to the final published paper online.

Suggested Citation

  • Marieke Bos & Emily Breza & Andres Liberman, 2018. "The Labor Market Effects of Credit Market Information," The Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2005-2037.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:6:p:2005-2037.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy006
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    2. Kristle R. Cortes & Andrew Glover & Murat Tasci, 2022. "The Unintended Consequences of Employer Credit Check Bans for Labor Markets," The Review of Economics and Statistics, MIT Press, vol. 104(5), pages 997-1009, December.
    3. Lalive, Rafael & Card, David & Colella, Fabrizio, 2021. "Gender Preferences in Job Vacancies and Workplace Gender Diversity," CEPR Discussion Papers 16619, C.E.P.R. Discussion Papers.
    4. Sergei Kovbasyuk & Giancarlo Spagnolo, 2016. "Memory and Markets," EIEF Working Papers Series 1606, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2017.
    5. Will Dobbie & Paul Goldsmith‐Pinkham & Neale Mahoney & Jae Song, 2020. "Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports," Journal of Finance, American Finance Association, vol. 75(5), pages 2377-2419, October.
    6. Giacomo De Giorgi & Costanza Naguib, 2023. "Life after (Soft) Default," Papers 2306.00574, arXiv.org, revised Apr 2024.
    7. Jean‐Noël Barrot & Erik Loualiche & Matthew Plosser & Julien Sauvagnat, 2022. "Import Competition and Household Debt," Journal of Finance, American Finance Association, vol. 77(6), pages 3037-3091, December.
    8. Angelo D’Andrea & Patrick Hitayezu & Mr. Kangni R Kpodar & Nicola Limodio & Mr. Andrea F Presbitero, 2024. "Mobile Internet, Collateral, and Banking," IMF Working Papers 2024/070, International Monetary Fund.
    9. Peter Kuhn & Kailing Shen, 2023. "What Happens When Employers Can No Longer Discriminate in Job Ads?," American Economic Review, American Economic Association, vol. 113(4), pages 1013-1048, April.
    10. Tali Bank & Nimrod Segev & Maya Shaton, 2023. "Relationship Banking and Credit Scores: Evidence from a Natural Experiment," Bank of Israel Working Papers 2023.05, Bank of Israel.
    11. Brian Jonghwan Lee, 2024. "Bankruptcy Lawyers and Credit Recovery," Working Papers 24-10, Federal Reserve Bank of Philadelphia.
    12. Dean Corbae & Andrew Glover, 2018. "Employer Credit Checks: Poverty Traps versus Matching Efficiency," NBER Working Papers 25005, National Bureau of Economic Research, Inc.
    13. Mueller, Holger M. & Yannelis, Constantine, 2019. "The rise in student loan defaults," Journal of Financial Economics, Elsevier, vol. 131(1), pages 1-19.
    14. Nicolás de Roux, 2021. "Exogenous shocks, credit reports and access to credit: Evidence from colombian coffee producers," Documentos CEDE 19769, Universidad de los Andes, Facultad de Economía, CEDE.
    15. Cox, James C. & Kreisman, Daniel & Dynarski, Susan, 2020. "Designed to fail: Effects of the default option and information complexity on student loan repayment," Journal of Public Economics, Elsevier, vol. 192(C).
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    18. de Bruijn, Ernst-Jan & Vethaak, Heike & Koning, Pierre & Knoef, Marike, 2023. "Debt Relief for the Financially Vulnerable: Impact on Employment, Welfare Receipt, and Mental Health," IZA Discussion Papers 16336, Institute of Labor Economics (IZA).
    19. Barboni, Giorgia & Cardenas, Juan Camilo & de Roux, Nicolas, 2022. "Behavioral Messages and Debt Repayment," CAGE Online Working Paper Series 633, Competitive Advantage in the Global Economy (CAGE).
    20. Notheisen, Benedikt & Weinhardt, Christof, 2019. "The blockchain, plums, and lemons: Information asymmetries & transparency in decentralized markets," Working Paper Series in Economics 130, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    21. Lahiri, Bidisha & Daramola, Richard, 2023. "Effects of credit and labor constraints on microenterprises and the unintended impact of changes in household endowments: Use of threshold estimation to detect heterogeneity," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 21-38.
    22. Aymeric Bellon & J. Anthony Cookson & Erik P. Gilje & Rawley Z. Heimer, 2020. "Personal Wealth and Self-Employment," NBER Working Papers 27452, National Bureau of Economic Research, Inc.
    23. Ballance, Joshua & Clifford, Robert & Shoag, Daniel, 2020. "“No more credit score”: Employer credit check bans and signal substitution," Labour Economics, Elsevier, vol. 63(C).

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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