It seems fairly obvious that unemployment would cause – or at least lead to mortgage delinquencies. But what about the reverse? Do delinquencies cause unemployment? We might see that in a narrow sense, but according to University of Chicago Economics Professor Casey Mulligan, there is a clear link.

In a new paper published by the National Bureau of Economic Research, Mulligan argues the actions of lenders offer homeowners strong incentives to become unemployed, or at least minimize what they earn.

“Debt obligations,” Mulligan wrote “can sometimes exceed a borrower’s capacity to pay, in which case he may not have an incentive to produce income that can be seized by the lender.” In that case, he wrote in his paper: “A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance,” debt forgiveness can make both borrower and lender better off,” describing debt overhang.

All of that seems fairly straightforward – ignoring the equations and academese in Mulligan’s paper.

The phenomenon Mulligan describes sounds very much like “trickle down economics” in reverse.

“I expect,” Mulligan added on his blog, “homeowners to take deliberate steps to make themselves more forgivable: steps that include earning less income and going delinquent on mortgage payments.”

The government, Mulligan suggests, through its Troubled Asset Relief Program, is only adding to the problem.

“Consider a hypothetical example,” he said, “You and your spouse were both employed in 2005, at which time you bought a house, took out a mortgage equal to four years' family income and committed to a monthly payment about one quarter of your family's monthly income. Today your house is worth three year's income. To add to your injury, your family income is cut in half because you lost your job. Your housing payment is now more than half of your family income.”

If the mortgage lender is offering a loan modification program based on your income, Mulligan said, “Your best course of action may be to fail to find a new job.”

“When collateral is valuable,” according to Mulligan, “only a few borrowers will not pay their loans in full” and lenders can work with those who can’t pay without affecting other borrowers. But as collateral value falls -- as in the current housing market – “the worst-off borrowers cannot be forgiven as easily, because that forgiveness provides bad incentives for the others” concluding, “as collateral values fall in the wider economy, the worse off borrowers have increasingly bad incentives to earn income.” In other words, a homeowner in a house losing value has an incentive to not work.

Mulligan’s theory builds on the objective of lenders targeting their loan refinance and workout programs.

Low – and falling -- home values, he wrote, “create high tax rates on labor income” if we think of mortgage payments as a percentage of the value of the underlying collateral, the home. “These taxes,” Mulligan wrote, “do not go to the Treasury – they go to the lenders.”

“As collateral values fall,” he offered, “a larger fraction of borrowers consider paying less than the full amount and the lender [chooses workout candidates] based on how much the defaulting borrowers earn.

As an example, Mulligan pointed to Citigroup’s loan workout program in which Citigroup said it would use a simple formula to develop an affordable payment as a percentage of a borrower’s gross income.

If the formula called set the payment at 25% of gross income, Mulligan wrote, “an action by a borrower to increase his income would increase his payment obligation by 25%” of the additional income. “If an affordable payment were re-evaluated monthly, this would amount to a 25% marginal tax rate over the life of the loan.”

Mulligan’s argument differs slightly from those who contend higher tax rates create a disincentive to higher earnings. Under our progressive tax system, higher tax rates apply only to the amount over the threshold. In other words, if the tax rate was 10% up to $100,000 and 15% above, an individual earning $150,000 would not pay 15% on his entire income, but only on the amount above $100,000.

“Federal and state treasuries tax labor income and subsidize unemployment,” Mulligan said in his paper. “Thus while forgiveness helps borrowers, creditors’ decisions to link forgiveness to borrower income and employment status harms those treasuries.

One way for governments to avoid this dilemma would be to actually buy up the bad loans and develop loan workouts themselves.

A lot of Mulligan’s arguments go to some economics fundamentals of incentives and costs. Lenders, he suggests, offer troubled borrowers an incentive to remain unemployed, or at minimum under-employed.

It is, according to another economist, Russell Roberts of George Mason University, much like what government intervention does.

Government bailouts,” Roberts argued, “prevent behavior that would cure the problem on its own.”

Mark Lieberman is the senior economist for the FOX Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.