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Overlooked benefits of consumer credit growth: impact on formal employment

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  • Güneş A. Aşık

    (TOBB University of Economics and Technology)

Abstract

This paper investigates the role of consumer credit growth and expansion of consumer financial services on the reduction of informal employment in a developing country. I argue that financial services growth should lead to a decline in the share of informal employment given that consumers whose borrowing constraints are relaxed are more likely to purchase goods with consumer credit and more likely to demand formal contracts. I test this hypothesis by exploiting the regional variation in consumer credit growth in Turkey. In order to address the endogeneity of financial services, I employ minority population loss between 1893 and 1935 in as an instrument. The identification strategy relies on the fact that minorities were main users of financial instruments as they were the trading class in the former Ottoman Empire. The results provide evidence in favor of a positive causal impact of consumer credit growth on formal employment, especially on low-skilled labor.

Suggested Citation

  • Güneş A. Aşık, 2018. "Overlooked benefits of consumer credit growth: impact on formal employment," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-35, December.
    • Handle: RePEc:spr:izalpo:v:7:y:2018:i:1:d:10.1186_s40173-018-0100-1
    DOI: 10.1186/s40173-018-0100-1
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    References listed on IDEAS

    as
    1. Cull, Robert (ed.), 2013. "Banking the World: Empirical Foundations of Financial Inclusion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262018425, December.
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    5. Binnur Balkan & Seyit M|min Cilasun & Belgi Turan, 2016. "The Impact of the Turkish Employment Subsidy Programs on Increasing the Level of Social Protection For Women," Working Papers 1022, Economic Research Forum, revised Jun 2016.
    6. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
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    More about this item

    Keywords

    Informal employment; Consumer credits; Financial services;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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