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The Debt Burden of Job Loss in a Nordic Welfare State

Author

Listed:
  • Maczulskij, Terhi

    (ETLA - The Research Institute of the Finnish Economy)

  • Kanninen, Ohto

    (LABORE Labour Institute for Economic Research)

  • Karhunen, Hannu

    (LABORE Labour Institute for Economic Research)

  • Tahvonen, Ossi

    (University of Helsinki)

Abstract

Using linked employer-employee data combined with administrative data on debt enforcement, we analyze the impact of job loss on debt problems in Finland, where even 50% of income may be subject to wage garnishment for up to 25 years. Our results show that job loss, defined by plant closures and mass layoffs, increases the incidence of enforced debt by approximately 10%, with the effect persisting for at least a decade. The impact is particularly large for unpaid taxes and various private debts, such as installment purchase payments. Moreover, the effects are stronger among individuals who were already burdened with excessive overall debt, such as mortgages, before displacement. We also document spillover effects on spouses and children, indicating that job loss can have far-reaching consequences for household indebtedness. However, we find no significant effect on filing for personal bankruptcy.

Suggested Citation

  • Maczulskij, Terhi & Kanninen, Ohto & Karhunen, Hannu & Tahvonen, Ossi, 2025. "The Debt Burden of Job Loss in a Nordic Welfare State," IZA Discussion Papers 17940, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17940
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    More about this item

    Keywords

    employer-employee data; involuntary job loss; debt enforcement; default; personal bankruptcy;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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