IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/22711.html
   My bibliography  Save this paper

Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

Author

Listed:
  • Will Dobbie
  • Paul Goldsmith-Pinkham
  • Neale Mahoney
  • Jae Song

Abstract

Credit reports are used in nearly all consumer lending decisions and, increasingly, in hiring decisions in the labor market, but the impact of a bad credit report is largely unknown. We study the effects of credit reports on financial and labor market outcomes using a difference-in-differences research design that compares changes in outcomes over time for Chapter 13 filers, whose personal bankruptcy flags are removed from credit reports after 7 years, to changes for Chapter 7 filers, whose personal bankruptcy flags are removed from credit reports after 10 years. Using credit bureau data, we show that the removal of a Chapter 13 bankruptcy flag leads to a large increase in credit scores, and an economically significant increase in credit card balances and mortgage borrowing. We study labor market effects using administrative tax records linked to personal bankruptcy records. In sharp contrast to the credit market effects, we estimate a precise zero effect of flag removal on employment and earnings outcomes. We conclude that credit reports are important for credit market outcomes, where they are the primary source of information used to screen applicants, but are of limited consequence for labor market outcomes, where employers rely on a much broader set of screening mechanisms.

Suggested Citation

  • Will Dobbie & Paul Goldsmith-Pinkham & Neale Mahoney & Jae Song, 2016. "Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports," NBER Working Papers 22711, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22711
    Note: CF LS PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w22711.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Will Dobbie & Jae Song, 2015. "Debt Relief and Debtor Outcomes: Measuring the Effects of Consumer Bankruptcy Protection," American Economic Review, American Economic Association, vol. 105(3), pages 1272-1311, March.
    2. Clifford, Robert & Shoag, Daniel, 2016. ""No More Credit Score": Emplyer Credit Check Bans and Signal Substitution," Working Paper Series 16-008, Harvard University, John F. Kennedy School of Government.
    3. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    4. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 149-185.
    5. Marieke Bos & Emily Breza & Andres Liberman, 2018. "The Labor Market Effects of Credit Market Information," Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2005-2037.
    6. Will Dobbie & Paul Goldsmith-Pinkham & Crystal S. Yang, 2017. "Consumer Bankruptcy and Financial Health," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 853-869, December.
    7. Ashima, 2013. "Employee Satisfaction at Maruti Suzuki India Limited," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 8(12), pages 35-41, AprilOcto.
    8. Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2014. "Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates," The Review of Economics and Statistics, MIT Press, vol. 96(3), pages 431-443, July.
    9. Robert Clifford & Daniel Shoag, 2016. "“No more credit score”: employer credit check bans and signal substitution," Working Papers 16-10, Federal Reserve Bank of Boston.
    10. Amy Finkelstein & Sarah Taubman & Bill Wright & Mira Bernstein & Jonathan Gruber & Joseph P. Newhouse & Heidi Allen & Katherine Baicker, 2012. "The Oregon Health Insurance Experiment: Evidence from the First Year," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1057-1106.
    11. Neale Mahoney, 2015. "Bankruptcy as Implicit Health Insurance," American Economic Review, American Economic Association, vol. 105(2), pages 710-746, February.
    12. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 175-200, Fall.
    13. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, vol. 77(4), pages 725-748, October.
    14. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2018. "Do Banks Pass through Credit Expansions to Consumers Who want to Borrow?," The Quarterly Journal of Economics, Oxford University Press, vol. 133(1), pages 129-190.
    15. 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.
    16. Sergei Kovbasyuk & Giancarlo Spagnolo, 2016. "Memory and Markets," EIEF Working Papers Series 1606, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2017.
    17. -, Anupama, 2013. "Deficits In Productive Employment In India," Journal of Regional Development and Planning, Rajarshi Majumder, vol. 2(2), pages 87-107.
    18. Leora Friedberg & Richard M. Hynes & Nathaniel Pattison, 2021. "Who Benefits from Bans on Employers’ Credit Checks?," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 675-703.
    19. Robert B. Avery & Paul S. Calem & Glenn B. Canner, 2003. "An overview of consumer data and credit reporting," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 89(Feb), pages 47-73, February.
    20. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
    21. -, 2013. "Employers and higher education system," Voprosy obrazovaniya / Educational Studies Moscow, National Research University Higher School of Economics, issue 1, pages 174-182.
    22. Donghoon Lee & Wilbert Van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports 479, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Eduardo Dávila, 2020. "Using Elasticities to Derive Optimal Bankruptcy Exemptions," Review of Economic Studies, Oxford University Press, vol. 87(2), pages 870-913.
    3. Barry Scholnick & Hyungsuk Byun, 2016. "Do Slot Machines Cause Bankruptcy? A Regulatory Natural Experiment with Exogenous Changes to Slot Locations," ERSA conference papers ersa16p607, European Regional Science Association.
    4. Andres Liberman & Christopher Neilson & Luis Opazo & Seth Zimmerman, 2018. "The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets," NBER Working Papers 25097, National Bureau of Economic Research, Inc.
    5. Vyacheslav Mikhed & Barry Scholnick, 2015. "Who is screened out of social insurance programs by entry barriers? Evidence from consumer bankruptcies," Working Papers 15-40, Federal Reserve Bank of Philadelphia.
    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. Hyungsuk Byun & Barry Scholnick, 2017. "Spatial Commitment Devices and Addictive Goods: Evidence from the Removal of Slot Machines from Bars," Working Papers 17-34, Federal Reserve Bank of Philadelphia.
    8. Robert Collinson & John Eric Humphries & Nicholas S. Mader & Davin K. Reed & Daniel I. Tannenbaum & Winnie van Dijk, 2022. "Eviction and Poverty in American Cities," NBER Working Papers 30382, National Bureau of Economic Research, Inc.
    9. Danisewicz, Piotr & Elard, Ilaf, 2023. "The real effects of financial technology: Marketplace lending and personal bankruptcy," Journal of Banking & Finance, Elsevier, vol. 155(C).
    10. Pattison, Nathaniel, 2020. "Consumption smoothing and debtor protections," Journal of Public Economics, Elsevier, vol. 192(C).
    11. 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).
    12. John Eric Humphries & Nicholas Mader & Daniel Tannenbaum & Winnie van Dijk, 2019. "Does Eviction Cause Poverty? Quasi-Experimental Evidence from Cook County, IL," CESifo Working Paper Series 7800, CESifo.
    13. Stefania Albanesi & Jaromir B. Nosal, 2015. "Insolvency after the 2005 bankruptcy reform," Staff Reports 725, Federal Reserve Bank of New York.
    14. Montebruno, Piero & Silva, Olmo & Szumilo, Nikodem, 2021. "Judge Dread: court severity, repossession risk and demand in mortgage and housing markets," LSE Research Online Documents on Economics 110474, London School of Economics and Political Science, LSE Library.
    15. Will Dobbie & Jae Song, 2016. "Debt Relief or Debt Restructuring? Evidence from an Experiment with Distressed Credit Card Borrowers," Working Papers 599, Princeton University, Department of Economics, Industrial Relations Section..
    16. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.
    17. Song Han & Benjamin J. Keys & Geng Li, 2011. "Credit supply to personal bankruptcy filers: evidence from credit card mailings," Finance and Economics Discussion Series 2011-29, Board of Governors of the Federal Reserve System (U.S.).
    18. Argys, Laura M. & Friedson, Andrew I. & Pitts, M. Melinda & Tello-Trillo, D. Sebastian, 2020. "Losing public health insurance: TennCare reform and personal financial distress," Journal of Public Economics, Elsevier, vol. 187(C).
    19. Lee, Ho-Seok & Lim, Byung Hwa, 2023. "Personal bankruptcy and post-bankruptcy liquidity constraint," Journal of Banking & Finance, Elsevier, vol. 152(C).
    20. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:22711. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.