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Long Shadow of the U.S. Mortgage Expansion: Evidence from Local Labour Markets

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  • Mitra, Aruni
  • Wei, Mengying

Abstract

We construct U.S. county-level credit supply shocks by interacting the mortgage growth of multi-market lenders with a county’s initial exposure to those lenders. The credit shocks did not impact the local labour markets during the credit boom but had a negative effect during the Great Recession. While local unemployment rates recovered post-Recession, wage growth remained depressed. Further, a long-run increase in older firms’ employment share suggests a credit-induced reduction in business dynamism and labour demand. A mechanism through occasionally binding financial constraints tied to house prices can qualitatively explain these asymmetric effects of credit shocks in booms and busts.

Suggested Citation

  • Mitra, Aruni & Wei, Mengying, 2023. "Long Shadow of the U.S. Mortgage Expansion: Evidence from Local Labour Markets," MPRA Paper 116969, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116969
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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