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

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Kyle Herkenhoff, Assistant Professor of Economics, University of Minnesota
Gordon Phillips, C.V. Starr Foundation Professor and Academic Director of the Center for
Private Equity and Entrepreneurship at the Tuck School of Business, Dartmouth College
Ethan Cohen-Cole, Managing Director and Financial Services Practice Lead, Econ One Research


How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured “formal” jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities.

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