Household debt and labour supply

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 24 September 2021

Staff Working Paper No. 941

By Philip Bunn, Jagjit Chadha, Thomas Lazarowicz, Stephen Millard and Emma Rockall

In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.

Household debt and labour supply

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