NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Labor Market Effects of Credit Market Information

Marieke Bos, Emily Breza, Andres Liberman

NBER Working Paper No. 22436
Issued in July 2016
NBER Program(s):Corporate Finance, Labor Studies

Credit information affects the allocation of consumer credit, but its effects on other markets that are relevant for academic and policy analysis are unknown. This paper measures the effect of negative credit information on the employment and earnings of Swedish individuals at the margins of the formal credit and labor markets. We exploit a policy change that generates quasi-exogenous variation in the retention time of past delinquencies on credit reports and estimate that one additional year of negative credit information causes a reduction in wage earnings of $1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. We exploit differences in the information available to employers and banks to show suggestive evidence that this cost of default is borne inefficiently by the relatively more creditworthy individuals among previous defaulters.

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Document Object Identifier (DOI): 10.3386/w22436

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