Three Essays on the Interconnectedness of Labor Markets and Household Finance

Abstract

This dissertation consists of three self-contained essays that investigate the interconnectedness of labor markets and household finance. The first two chapters focus on differences in workers' labor market experience and on how this heterogeneity influences their financial decisions. The first chapter shows that differences in unemployment risk produce long-lasting effects on lifetime earnings, consumption, and wealth, while the second chapter shows that an important part of the observed heterogeneity in households' portfolio choices can be rationalized by the empirically observed differences in labor market risk. In the third chapter the perspective changes, as this final chapter analyses how shocks in financial markets propagate through household balance sheets to produce macroeconomically relevant effects on the labor market. Using the evidence from the Great Recession, I show that households' limited ability to obtain mortgage credit in the aftermath of the financial crisis of 2007 resulted in fewer firms being created, which consequently negatively affected aggregate job creation.