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Household Leverage and Labor Market Outcomes : Evidence from a Macroprudential Mortgage Restriction

Author

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  • Gazi Kabaş
  • Kasper Roszbach

Abstract

Does household leverage matter for worker job search, matching in the labor market, and wages? Theoretically, household leverage can have opposing effects on the labor market through debt-overhang and liquidity constraint channels. To test which channel dominates empirically, we exploit the introduction of a loan-to-value ratio restriction in Norway that exogenously reduces household leverage. Focusing on a sample of displaced workers who bought a house before losing their jobs due to mass layoffs, we find that a reduction in leverage raises the subsequent wages of these workers. Lower leverage enables workers to search longer, find jobs in higher-paying firms, and switch into new occupations and industries. The positive effect on wages is persistent and more pronounced for young and highly-educated workers who are more likely to benefit from the effects of a reduction in leverage on job search. Our results indicate that in addition to reducing financial stability risks, policies limiting household leverage can improve workers’ labor market outcomes.

Suggested Citation

  • Gazi Kabaş & Kasper Roszbach, 2021. "Household Leverage and Labor Market Outcomes : Evidence from a Macroprudential Mortgage Restriction," Working Paper 2021/14, Norges Bank.
    • Handle: RePEc:bno:worpap:2021_14
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    File URL: https://hdl.handle.net/11250/2833887
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    More about this item

    Keywords

    Household Leverage; Household Debt; Job Displacement; Job Search; Macroprudential Policy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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