Labor market upheaval, default regulations, and consumer debt

Kartik Athreya; Juan M. Sánchez; Xuan S. Tam; Eric R. Young

doi:10.1016/j.red.2014.08.001

Labor market upheaval, default regulations, and consumer debt

Kartik Athreya^*, Juan M. Sánchez, Xuan S. Tam, Eric R. Young

^*Corresponding author for this work

Department of Economics and Finance

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

Abstract

In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default through delinquency rose sharply. In the subsequent recovery, households have been widely viewed as "deleveraging" (Mian and Sufi, 2010; Eggertson and Krugman, 2012) via the largest reduction of unsecured debt seen in the past three decades. We measure the relative roles of recent bankruptcy reform and labor market risk in accounting for consumer debt and default over the Great Recession. Our results suggest that bankruptcy reform likely prevented a substantial increase in formal bankruptcy filings, but had only limited effect on informal default from delinquencies, and that changes in job-finding rates were central to both. (C) 2014 Elsevier Inc. All rights reserved.

Original language	English
Pages (from-to)	32-52
Journal	Review of Economic Dynamics
Volume	18
Issue number	1
Online published	26 Aug 2014
DOIs	https://doi.org/10.1016/j.red.2014.08.001
Publication status	Published - Jan 2015

Funding

We thank various seminar and conference participants, and especially the anonymous referee and our discussants, Dean Corbae, and Aye Kabukcuoglu, for insightful comments. The views expressed here are solely those of the authors and not necessarily those of the Federal Reserve Banks of Richmond or St. Louis or the Federal Reserve System. Young thanks the Bankard Fund for Political Economy at the University of Virginia (Grant No. 122534-ey2d15-ER00562-31750) for financial support.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Research Keywords

Delinquency
Personal bankruptcy
Unsecured debt
Job separation
Job finding
CREDIT
BANKRUPTCY
RISK

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10.1016/j.red.2014.08.001

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title = "Labor market upheaval, default regulations, and consumer debt",

abstract = "In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default through delinquency rose sharply. In the subsequent recovery, households have been widely viewed as {"}deleveraging{"} (Mian and Sufi, 2010; Eggertson and Krugman, 2012) via the largest reduction of unsecured debt seen in the past three decades. We measure the relative roles of recent bankruptcy reform and labor market risk in accounting for consumer debt and default over the Great Recession. Our results suggest that bankruptcy reform likely prevented a substantial increase in formal bankruptcy filings, but had only limited effect on informal default from delinquencies, and that changes in job-finding rates were central to both. (C) 2014 Elsevier Inc. All rights reserved.",

keywords = "Delinquency, Personal bankruptcy, Unsecured debt, Job separation, Job finding, CREDIT, BANKRUPTCY, RISK",

author = "Kartik Athreya and S{\'a}nchez, {Juan M.} and Tam, {Xuan S.} and Young, {Eric R.}",

year = "2015",

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doi = "10.1016/j.red.2014.08.001",

language = "English",

volume = "18",

pages = "32--52",

journal = "Review of Economic Dynamics",

issn = "1094-2025",

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TY - JOUR

T1 - Labor market upheaval, default regulations, and consumer debt

AU - Athreya, Kartik

AU - Sánchez, Juan M.

AU - Tam, Xuan S.

AU - Young, Eric R.

PY - 2015/1

Y1 - 2015/1

N2 - In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default through delinquency rose sharply. In the subsequent recovery, households have been widely viewed as "deleveraging" (Mian and Sufi, 2010; Eggertson and Krugman, 2012) via the largest reduction of unsecured debt seen in the past three decades. We measure the relative roles of recent bankruptcy reform and labor market risk in accounting for consumer debt and default over the Great Recession. Our results suggest that bankruptcy reform likely prevented a substantial increase in formal bankruptcy filings, but had only limited effect on informal default from delinquencies, and that changes in job-finding rates were central to both. (C) 2014 Elsevier Inc. All rights reserved.

AB - In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default through delinquency rose sharply. In the subsequent recovery, households have been widely viewed as "deleveraging" (Mian and Sufi, 2010; Eggertson and Krugman, 2012) via the largest reduction of unsecured debt seen in the past three decades. We measure the relative roles of recent bankruptcy reform and labor market risk in accounting for consumer debt and default over the Great Recession. Our results suggest that bankruptcy reform likely prevented a substantial increase in formal bankruptcy filings, but had only limited effect on informal default from delinquencies, and that changes in job-finding rates were central to both. (C) 2014 Elsevier Inc. All rights reserved.

KW - Delinquency

KW - Personal bankruptcy

KW - Unsecured debt

KW - Job separation

KW - Job finding

KW - CREDIT

KW - BANKRUPTCY

KW - RISK

UR - https://app-overton-io.ezproxy.cityu.edu.hk/articles.php?query=10.1016/j.red.2014.08.001

U2 - 10.1016/j.red.2014.08.001

DO - 10.1016/j.red.2014.08.001

M3 - RGC 21 - Publication in refereed journal

SN - 1094-2025

VL - 18

SP - 32

EP - 52

JO - Review of Economic Dynamics

JF - Review of Economic Dynamics

IS - 1

ER -

Labor market upheaval, default regulations, and consumer debt

Abstract

Funding

UN SDGs

Research Keywords

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