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Wealth accumulation, on-the-job search and inequality

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  • Chaumont, Gaston
  • Shi, Shouyong

Abstract

We study a directed search equilibrium with risk-averse workers who can search on the job and accumulate non-contingent assets under a borrowing limit. Search outcomes affect earnings and wealth accumulation. In turn, wealth and earnings affect search decisions by changing the optimal trade-off between the wage and the matching probability. The interaction between search and wealth provides important self-insurance. The calibrated model yields significant wage inequality as measured by the mean-min ratio in wages. We analyze the dynamic welfare effects of changes in unemployment insurance and find a relatively limited role for unemployment insurance as self-insurance significantly reduces consumption risk.

Suggested Citation

  • Chaumont, Gaston & Shi, Shouyong, 2022. "Wealth accumulation, on-the-job search and inequality," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 51-71.
    • Handle: RePEc:eee:moneco:v:128:y:2022:i:c:p:51-71
    DOI: 10.1016/j.jmoneco.2022.03.009
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    Cited by:

    1. Pagano, Marco & Picariello, Luca, 2023. "Talent discovery, layoff risk and unemployment insurance," European Economic Review, Elsevier, vol. 154(C).
    2. Jan Eeckhout & Alireza Sepahsalari, 2020. "The Effect of Wealth on Worker Productivity," Bristol Economics Discussion Papers 20/731, School of Economics, University of Bristol, UK.
    3. François Fontaine & Janne Nyborg Jensen & Rune Vejlin, 2019. "Wealth, Portfolios, and Unemployment Duration," 2019 Meeting Papers 949, Society for Economic Dynamics.
    4. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2023. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    5. Benjamin S. Griffy, 2021. "Search And The Sources Of Life‐Cycle Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1321-1362, November.
    6. Dean Corbae & Andrew Glover, 2018. "Employer Credit Checks: Poverty Traps versus Matching Efficiency," NBER Working Papers 25005, National Bureau of Economic Research, Inc.
    7. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.
    8. Dean Corbae & Andrew Glover & Michael Nattinger, 2023. "Equilibrium Evictions," Research Working Paper RWP 23-03, Federal Reserve Bank of Kansas City.
    9. Kevin Fawcett & Shouyong Shi, 2018. "Learning, On-the-Job Search and Wage-Tenure Contracts," Working Papers tecipa-597, University of Toronto, Department of Economics.
    10. Jiyeon Kim, 2019. "Skill-Biased Technological Change, Inequality, and the Role of Retraining," Working Paper 7116, Department of Economics, University of Pittsburgh.

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    More about this item

    Keywords

    Wealth accumulation; On-the-job search; Inequality; Directed search;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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