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

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  • Kyle Herkenhoff
  • Gordon Phillips
  • Ethan Cohen-Cole

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, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," NBER Working Papers 22846, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22846
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    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D1 - Microeconomics - - Household Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • K36 - Law and Economics - - Other Substantive Areas of Law - - - Family and Personal Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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