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The Impact of Consumer Credit Access on Employment, Earnings, and Entrepreneurship

Author

Listed:
  • Kyle Herkenhoff

    () (University of Minnesota)

  • Gordon Phillips

    (Dartmouth College Tuck School of Business)

  • Ethan Cohen-Cole

    () (Econ One Research)

Abstract

How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured ``formal'' jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities.

Suggested Citation

  • Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2017. "The Impact of Consumer Credit Access on Employment, Earnings, and Entrepreneurship," Working Papers 2017-011, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2017-011
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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Herkenhoff_Phillips_Cohen-Cole_2017_consumer-credit_entrepreneurship.pdf
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    Cited by:

    1. Léon, Florian, 2019. "Long-term finance and entrepreneurship," Economic Systems, Elsevier, vol. 43(2), pages 1-1.
    2. Serdar Birinci & Kurt Gerrard See, 2018. "How Should Unemployment Insurance vary over the Business Cycle?," 2018 Meeting Papers 69, Society for Economic Dynamics.
    3. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    4. Jonathan D. Fisher, 2019. "Who Files for Personal Bankruptcy in the United States?," Journal of Consumer Affairs, Wiley Blackwell, vol. 53(4), pages 2003-2026, December.
    5. Barrot, Jean-No�l & Loualiche, Erik & Plosser, Matthew & Sauvagnat, Julien, 2017. "Import Competition and Household Debt," CEPR Discussion Papers 12098, C.E.P.R. Discussion Papers.
    6. Marco Di Maggio & Ankit Kalda & Vincent Yao, 2019. "Second Chance: Life without Student Debt," NBER Working Papers 25810, National Bureau of Economic Research, Inc.
    7. Mi Luo & Simon Mongey, 2019. "Assets and Job Choice: Student Debt, Wages, and Job Satisfaction," 2019 Meeting Papers 1220, Society for Economic Dynamics.
    8. Daphne Chen & Jake Zhao, 2017. "The Impact of Personal Bankruptcy on Labor Supply Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 40-61, October.
    9. Will Dobbie & Paul Goldsmith-Pinkham & Neale Mahoney & Jae Song, 2016. "Bad credit, no problem? Credit and labor market consequences of bad credit reports," Staff Reports 795, Federal Reserve Bank of New York, revised 01 May 2017.
    10. Carlos Madeira, 2020. "The impact of information laws on consumer credit access: evidence from Chile," Working Papers Central Bank of Chile 873, Central Bank of Chile.
    11. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    12. Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2016. "The Marginal Propensity to Consume Over the Business Cycle," NBER Working Papers 22518, National Bureau of Economic Research, Inc.
    13. James C. Cox & Daniel Kreisman & Susan Dynarski, 2018. "Designed to Fail: Effects of the Default Option and Information Complexity on Student Loan Repayment," NBER Working Papers 25258, National Bureau of Economic Research, Inc.
    14. Mi Luo & Simon Mongey, 2019. "Assets and Job Choice: Student Debt, Wages and Amenities," NBER Working Papers 25801, National Bureau of Economic Research, Inc.
    15. Luojia Hu & Xing Huang & Andrei Simonov, 2020. "Credit Score Doctors," Working Paper Series WP 2020-07, Federal Reserve Bank of Chicago.
    16. Cai, Dongliang & Song, Quanyun & Ma, Shuang & Dong, Yang & Xu, Qiuhua, 2018. "The relationship between credit constraints and household entrepreneurship in China," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 246-258.
    17. Ballance, Joshua & Clifford, Robert & Shoag, Daniel, 2020. "“No more credit score”: Employer credit check bans and signal substitution," Labour Economics, Elsevier, vol. 63(C).
    18. Steven J. Davis & John C. Haltiwanger, 2019. "Dynamism Diminished: The Role of Housing Markets and Credit Conditions," NBER Working Papers 25466, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    credit access; entrepreneurship; bankruptcy;

    JEL classification:

    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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