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Debt Constraints and Employment

Kehoe, P; Midrigan, V; Pastorino, E; (2019) Debt Constraints and Employment. Journal of Political Economy , 127 (4) pp. 1926-1991. 10.1086/701608. Green open access

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During the Great Recession, US regions that experienced large declines in household debt also experienced large drops in consumption, employment, and wages. We develop a search and matching model in which tighter debt constraints raise the cost of investing in new job vacancies and so reduce job-finding rates and employment. On-the-job human capital accumulation is critical to generating sizable drops in employment: it increases the duration of the benefit flows from posting vacancies, thereby amplifying the employment drop from a credit tightening 10-fold relative to the standard model. Our model reproduces the salient cross-regional features of the US Great Recession.

Type: Article
Title: Debt Constraints and Employment
Open access status: An open access version is available from UCL Discovery
DOI: 10.1086/701608
Publisher version: https://doi.org/10.1086/701608
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
URI: https://discovery.ucl.ac.uk/id/eprint/10054391
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