Financial Access and Labor Market Outcomes: Evidence from Credit Lotteries

We assess the employment and income effects of access to credit dedicated to investment in individual mobility (a motorcycle). For identification, we exploit random time-series variation in access to credit through random lotteries for participants in a group-lending mechanism in Brazil. We find that access to credit for investment in individual mobility permanently increases formal employment rates and salaries, yielding an annual real rate of return of 16.94 percent over a ten-year horizon. Consistent with a geographically broader job search, we find that individuals transition to jobs further away from home and public transportation. Our results suggest that credit constraints prevent individuals from accessing parts of the labor market. As a consequence, extending credit for investment in mobility enables individuals to access geographically distant labor market opportunities, yielding high and persistent returns.