The Labor Market Impacts of Credit Market Information

One function of credit registries is to impose costs on defaulters. This paper exploits detailed data matching credit and labor market outcomes in Sweden and a policy change that provides quasi-experimental variation in the time information on past defaults remains publicly available to document an economically large cost of default in the labor market. When information on past defaults is removed earlier, an individual is more likely to have a job, is less likely to be self-employed, and earns a higher income. The employment cost of default may increase borrower repayment incentives and help sustain uncollateralized consumer credit markets, but may also amplify negative shocks, particularly for vulnerable households.