Jesús Gorrín, Assistant Professor of Finance

"Household Debt Composition and Labor Market Outcomes" with Nelson Camanho, Toni dos Santos and Bernardo Ricca

(DRAFT AVAILABLE UPON REQUEST)

​

How does indebtedness affect labor outcomes after job separation? Future debt repayments and limited access to consumption smoothing instruments may drive workers to accept early job offers at lower salaries -- a debt liquidity channel. Default costs may act as a disciplining mechanism that induces individuals to increase their search intensity or substitute non-pecuniary benefits for higher salaries -- a debt commitment channel. Finally, in the presence of personal limited liability and low default costs, debt payments might induce individuals to search longer to obtain a better-paid job -- a debt overhang channel. Linking a comprehensive credit registry with employer-employee data, we study how personal indebtedness at mass layoff correlates with the probability of reemployment in the formal sector, unemployment duration, and wage growth. We show that not only the level of debt but also its composition changes job search behaviour. As predicted by theory, unsecured and employment-linked debt associates with patterns consistent with household debt-overhang; while mortgages exhibit patterns