Racial Differences in Short-Run Earnings Stability and Implications for Credit Markets
41 Pages Posted: 18 Nov 1997
Date Written: June 1997
Abstract
This paper examines the claim that observed racial differences in rejection rates for mortgage applications, which persist after controlling for many relevant factors, are due to racial differences in short-run earnings stability, which has not typically been included in empirical tests. The evidence does not support the proposition that blacks suffer from greater earnings instability than comparable whites, as few consistent and significant racial differences in earnings volatility are found in a sample of potential home buyers. Only in the case of drastic earnings shocks with persistent effects does the possibility of significant racial differences reasonably remain. In general, racial differences in earnings instability appear to be minor and are unlikely to result in substantial differences in creditworthiness.
JEL Classification: J31, G21, J71
Suggested Citation: Suggested Citation
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