Household Debt Overhang and Unemployment

Donaldson, Jason Roderick; Piacentino, Giorgia; Thakor, Anjan V.

doi:10.2139/ssrn.3310018

Cited by 8 publications

(16 citation statements)

References 33 publications

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“…For “high” underwater MSA areas, with such a substantial portion of the local labor market affected, it certainly seems reasonable to expect that these labor market distortions may have been more than just a microeconomic consideration. Quantifying the exact general equilibrium effects of such distortions outside the scope of this paper, however, since regardless of the channel any local general equilibrium effects are likely affected by responses of wages, in‐migration, and firm competitiveness as illustrated in Donaldson, Piacentino, and Thakor (2019). In addition, as has been noted by Chetty, Olsen, and Pistaferri (2011) and Chetty (2012), macroeconomic estimated labor supply elasticities tend to exceed microeconomic estimates and typically cannot be easily recovered without the benefit of an underlying structural model.…”

Section: Resultsmentioning

confidence: 99%

“…As is well‐known, for highly levered firms a reduction in firm wealth reduces the marginal incentives for investment in positive net present value projects because the benefits accrue disproportionally to existing debt holders (Myers (1977)). As shown in theoretical work by Donaldson, Piacentino, and Thakor (2019), highly levered households face a similar debt overhang problem when deciding to invest in the effort needed to earn labor income. If a portion of any marginal income earned by an indebted household is transferred to a lender via increased expected liability repayment, this transfer to debt holders acts like an implicit tax that incentivizes households to reduce their labor supply.…”

Section: Discussion: Potential Mechanismsmentioning

confidence: 97%

“…If a portion of any marginal income earned by an indebted household is transferred to a lender via increased expected liability repayment, this transfer to debt holders acts like an implicit tax that incentivizes households to reduce their labor supply. This does not mean that households purposefully leave existing employment, but could suggest, as in Donaldson, Piacentino, and Thakor (2019) that unemployed workers could be incentivized to prolong job search in an effort to find a better match. Empirically, Dobbie and Song (2015) find evidence consistent with households’ labor decreases responding to such incentives.…”

Section: Discussion: Potential Mechanismsmentioning

confidence: 99%

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Negative Home Equity and Household Labor Supply

Bernstein¹

2021

The Journal of Finance

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Using U.S. household‐level data and plausibly exogenous variation in the location‐timing of home purchases with a single lender, I find that negative home equity causes a 2% to 6% reduction in household labor supply. Supporting causality, households are observationally equivalent at origination and equally sensitive to local housing shocks that do not cause negative equity. Results also hold comparing purchases within the same year‐metropolitan statistical area that differ by only a few months. Though multiple channels are likely at work, evidence of nonlinear effects is broadly consistent with costs associated with housing lock and financial distress.

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Section: Resultsmentioning

confidence: 99%

Section: Discussion: Potential Mechanismsmentioning

confidence: 97%

Section: Discussion: Potential Mechanismsmentioning

confidence: 99%

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Negative Home Equity and Household Labor Supply

Bernstein¹

2021

The Journal of Finance

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“…Therefore, they have to keep their expenditures to a minimum. Given this fact, if the number of unemployed people in a country increases, this will have a negative impact on the trade volume in the country [1]. In addition, people become unable to pay their debts to banks when they become unemployed.…”

Section: Introductionmentioning

confidence: 99%

Strategic Mapping of Youth Unemployment With Interval-Valued Intuitionistic Hesitant Fuzzy DEMATEL Based on 2-Tuple Linguistic Values

et al. 2020

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This study aims to identify the factors that affect youth unemployment in emerging countries. For this purpose, 3 dimensions and 12 criteria are selected as a result of literature review. The analysis process has 3 different steps. Firstly, interval-valued intuitionistic fuzzy sets are created with the help of 2-tuple linguistic data. Additionally, relation matrix is generated by considering these fuzzy sets. In the second process, defuzzification process is occurred. Finally, the dimensions and criteria are weighted with Decision-Making Trial and Evaluation Laboratory (DEMATEL) approach by using defuzzified data sets. The findings indicate that economic and social inequalities play the most significant role for youth unemployment in emerging countries. On the other side, it is also identified that economic crisis and insufficient education conditions are also important issues which lead to youth unemployment in these countries. Hence, it is recommended that governments should implement fair tax management practices in these countries to minimize economic and social inequalities. Furthermore, education conditions should be improved in the countries. In this framework, an effective education plan can be designed by cooperating with companies in the industry. Thus, labor needs in industry can be identified and education system can be designed according to the needs in the market. With the help of these implementations, it can be much easier for young people to find a job. INDEX TERMS2-tuple linguistic values, interval-valued intuitionistic fuzzy environment, fuzzy DEMATEL, NEET, emerging economies.

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“…Another line of research explores the relationship between household leverage and labor supply (e.g., Bernstein (2015), Mulligan (2008, 2009, 2010), Herkenhoff and Ohanian (2011), and Donaldson, Piacentino, and Thakor (2019)). In that literature, the focus is largely on how the decision of whether to be in the labor force is impacted by means‐tested mortgage modification programs.…”

mentioning

confidence: 99%

Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

Bernstein¹,

McQuade²,

Townsend

2020

The Journal of Finance

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We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.

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Household Debt Overhang and Unemployment

Cited by 8 publications

References 33 publications

Negative Home Equity and Household Labor Supply

Negative Home Equity and Household Labor Supply

Strategic Mapping of Youth Unemployment With Interval-Valued Intuitionistic Hesitant Fuzzy DEMATEL Based on 2-Tuple Linguistic Values

Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

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