Our paper entitled “The Labor Market Effects of Credit Market Information” together with Emily Breza and Andres Liberman was accepted for publication in The Review of Financial Studies.
We exploit a natural experiment to provide one of the first measurements of the causal effect of negative credit information on employment and earnings. We estimate that one additional year of negative credit information reduces employment by 3 percentage points and wage earnings by $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. Further evidence suggests this cost of default is borne inefficiently by the relatively more creditworthy individuals among previous defaulters