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Labor Market Shocks and Consumer Finance: evidence from Brazil

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  • Gabriel Garber
  • Carlos Eduardo Ladeira
  • Renata Narita

Abstract

This paper studies the effect of short-lived job displacement on individuals’ labor and credit market outcomes. Using Brazil as a laboratory, we link credit registry data to employment data to track those individual outcomes. Our difference-in-difference estimates show that workers who experience a permanent income loss delever and default following job loss. In contrast, workers who face a transitory income decline maintain their consumption, as they borrow in anticipation of the upcoming job loss while also defaulting on their debt. Moreover, these workers continue to increase their loan balances even after reemployment and full wage replacement, in part because they obtain better job contracts.

Suggested Citation

  • Gabriel Garber & Carlos Eduardo Ladeira & Renata Narita, 2026. "Labor Market Shocks and Consumer Finance: evidence from Brazil," Working Papers Series 649, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:649
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP649.pdf
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