Journal of Political Economy Vol. 127 No. 4 2019
Debt Constraints and Employment
Abstract
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.
- DOI
- 10.1086/701608
- Volume
- 127
- Issue
- 4
- Pages
- 1926-1991
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref