Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264942 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 14/2021
Publisher: 
Norges Bank, Oslo
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.
Subjects: 
Household Leverage
Household Debt
Job Displacement
Job Search
Macroprudential Policy
JEL: 
E21
G21
G51
J21
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-212-6
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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