The impact of consumer credit access on employment, earnings, and entrepreneurship

Project Summary:

This project studies access to credit, via bankruptcy flag removal, on several key outcomes of interest, including business formation rates, earnings and profitability. The research could provide a valuable contribution to our understanding of how microeconomic outcomes affect macroeconomic performance via the innovation channel. This connection is an important one that researchers have not been able to make in an empirically rigorous way to date. The basis of this project is the data: the authors will merge individual employment records from the U.S. Census Bureau with individual 1040 Schedule C tax returns and individual TransUnion credit reports. In addition to having clear implications for bankruptcy law, the study suggests important connections between credit access and employment, and also has potential implications for policy responses to the next economic downturn, given that credit access and debt forgiveness may impact macroeconomic growth in ways that are not well understood.

What can 5 million households tell us about the impact of credit access on job finding and wage inequality?

Project Summary:

This project will bring together macroeconomic theory and large-scale microeconomic datasets to advance modern economics and inform monetary and public policy. Using employment records merged to credit reports, the authors will estimate the impact of credit access on the job-finding rates and re-employment earnings of displaced workers. Past research has examined the borrowing and credit use of the unemployed, and this study builds on that line of work to examine the direct impact of credit on future outcomes. In preliminary results, the authors find that credit access increases the time before re-employment, but also increases average salary once a new job is found. This work will develop a search model capable of explaining these new findings.


Kyle Herkenhoff is Assistant Professor at the University of Minnesota and a Visiting Scholar at the Federal Reserve Bank of Minneapolis. His latest research, which is coauthored with Gordon Phillips and Ethan Cohen-Cole, combines new sorting theory and newly merged administrative credit records and employment histories to measure the impact of credit on the outcomes of displaced workers and the broader macroeconomy.  Follow up work, also joint with Gordon Phillips and Ethan Cohen-Cole, combines entrepreneur tax records with credit reports to explore the role of consumer credit for startups, entrepreneurship, and job flows.  

Herkenhoff has coauthored several papers with Lee E. Ohanian assessing the impact of mortgage market interventions on employment recoveries. His dissertation research, which was awarded UCLA's Welton Prize in Macroeconomics and the Institute of Humane Studies Dissertation Fellowship, looks at the rise of unsecured credit access among the unemployed during the mid 1980s and its role in jobless recoveries. Herkenhoff’s article with Kris Gerardi, Lee Ohanian, and Paul Willen was also the first to use micro level data to establish that the primary driver of mortgage default during the crisis was income loss and unemployment. He received his Ph.D. in economics from the University of California, Los Angeles.

Selected Publications