Predictably, the robustness of one’s financial safety net has a lot to do with just how pressured the unemployed feel to take a job even if it’s not a good fit. A strong safety net can buy the unemployed more time to hunt for a job without fear of skipping bills or cutting back on necessities. Even when wealthier households are cash-poor, they’re more likely than poorer families to have relatives they can borrow from, assets they can liquidate, or access to another important tool: credit.
A recent study found that when a household has enough credit to replace 10 percent (that would be a credit line of at least $5,400 for a median-income household) or more of their annual earnings, workers can take up three weeks longer to search for a job. Because they feel less pressure to take jobs that are lower paid, that offer worse benefits, that aren’t full-time, or that include a host of other compromises that can can be financially detrimental in the long-run, these workers have better job-hunting outcomes that can lead to better long-term financial health.
The freedom to extend a job hunt means that workers with access to credit wind up taking jobs at bigger, more productive companies, with wages that either match their prior salary or even slightly exceed it, the paper found.
Interestingly, whether someone takes advantage of that credit line is less relevant than simply having access to it in the first place. Racking up debt during a spell of unemployment isn’t an ideal way to manage a financial crisis, but in the absence of savings and in the face of choosing a worse career trajectory, it can be critical. The study found that credit-card holders don’t even actually have to max out (or use) their accounts in order to reap the psychological benefits that access to credit provides—they simply have to know that they could borrow if they needed to.
Because a lack of credit or low credit is more common for those who are already poor, the fact that access to credit can aid job searches means that already vulnerable segments of the population are the most likely to be forced into unfavorable work—with consequences that can last for decades. In a recent Fed survey, 39 percent of households who earn less than $40,000 a year said that they didn’t have a credit card. For groups who made more than that, fewer than 20 percent of households went without a credit card. On top of that, not relying credit during a prolonged job search might mean turning to worse, higher-priced options such as payday loans. Nearly 40 percent of households who were denied traditional credit said that they had sought out alternative forms of financing to tide them over during difficult times.