Philip Bunn, Jagjit Chadha, Thomas Lazarowicz, Stephen Millard and Emma Rockall
Does higher household debt lead to greater labour supply? Ahead of the Global Financial Crisis (GFC), UK household debt rose considerably. Since that crisis, the UK labour market has experienced high employment and high participation, alongside relatively weak wage growth. Might these observations be evidence that higher debt leads to higher labour supply? In a recent Working Paper, we attempt to answer this question. We do find a significant channel by which households with higher debt increase their labour supply in response to negative income shocks by more than households with lower (or no) debt. But, we do not think the effect is strong enough to explain the post-crisis strength in employment and participation at the aggregate level.
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