Two essays on consumer credit as a claim on workers’ income

This dissertation contains two chapters that study topics on the intersection of the consumer credit and labor markets. Below are the individual abstracts. Chapter 1: Does Paycheck Frequency Matter? Evidence from Micro Data Paycheck frequency is a salient labor income characteristic to which all workers are exposed. Using a unique dataset from an online account aggregator, we study whether paycheck frequency affects household financial outcomes. Looking at cross-sectional differences and within-household changes to paycheck frequency, we find that higher paycheck frequency results in less credit card borrowing yet more instances of financial distress. Moreover, we find that the timing of distress is strongly driven by the paycycle. Our model shows that higher paycheck frequency increases the liquidity available to households, increasing the willingness to allocate to illiquid savings, reducing consumption and within-paycycle borrowing. Chapter 2: Is Corporate Credit Risk Propagated to Employees? Using an administrative credit registry for individuals merged with matched employer-employee data, we investigate whether a firm's credit risk affects its employees' access to credit. We find that employees of companies that suffer credit rating downgrades have access to 20 percent less credit and face 10 percent higher interest rates compared with similar employees of non-downgraded firms. Workers from downgraded firms are also 5 p.p. more likely to default on loans than employees from unaffected firms. These adverse financial effects have real consequences, with employees cutting consumption by 9 percent following downgrades of their employers. Our results suggest that banks process information on the financial health of employers when pricing consumer credit