RESEARCH
RESEARCH
Designing Debt Restructuring: The Adverse Effects on Labor Market Outcomes
Best PhD Paper Award at CEPR Conference on Household Finance; Ola Bengtsson Award for the best Finance PhD paper
Abstract: This paper examines how the design of debt restructuring or personal insolvency programs shapes labor market outcomes using Sweden as a case study. In the Swedish debt restructuring program, debt is forgiven following a 5-year partial repayment period. I estimate the causal effects of the program using an examiner instrumental variable (IV) design and show that traditional examiner IV estimates can be biased if there is path dependency in examiner decision-making. This bias is avoided by estimating examiner leniency from past cases. On average, participation in the debt restructuring program has negative effects on labor income and employment, but these findings mask a large heterogeneity. Initially employed participants experience relative gains in income and employment, while initially unemployed participants face substantial negative effects. Both of these effects persist even after the program has ended. Combining observational data and results from a survey I conducted among debt restructuring participants, I show that the risk of substantial increases in repayment obligations disincentivizes unemployed participants from seeking employment. I then calibrate a labor supply model and show that modest changes in the repayment plan structure improve welfare for both debtors and creditors. These findings challenge the practice of substantially adjusting repayment plans in debt restructuring programs in response to income changes.
Abstract: We study the effects of corporate acquisitions on workers using Swedish administrative data and document substantial, persistent earnings losses following acquisitions. These losses reflect both displacement and wage cuts among stayers from target firms. We find no evidence that increased monopsony power accounts for these wage cuts. Instead, they are concentrated in acquisitions where the acquiring-firm CEO sat on the board of the target prior to the transaction. Such acquisitions increase acquiring-firm profits and CEO pay, without affecting total employment or revenue, consistent with rent redistribution. Overall, acquisitions reduce wages and disrupt employment, with profit gains partly extracted from workers.
Involuntary Part-Time Employment and Labor Market Concentration (with Antoine Germain and Patrizia Massner) [New draft coming soon]
Abstract: Many part-time workers report a preference for increasing their working hours at their current hourly wage, which is inconsistent with standard models where workers choose hours at a given wage rate. In a model where firms set hours, we show that involuntary part-time employment arises when (i) the labor market is concentrated, (ii) the marginal hire yields more revenue than the marginal hour in equilibrium, and (iii) workers' are more elastic to wages than to non-wage amenities. Using Swedish administrative data linked to surveys, we provide a range of correlational evidence consistent with these predictions. Then, we use granular shocks to assess the causal effects of labor market concentration. We exploit mass layoffs as a novel instrument that shifts concentration for workers in non-layoff firms within the same local labor market. We find that an increase in labor market concentration reduces hours worked of part-time workers. Our findings suggest that labor market concentration is a key driver of the gap between desired hours and equilibrium hours.