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Wealth Effect on Labor Market Transitions

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Author Info

  • Yann Algan

    (Universite de Paris I)

  • Arnaud Cheron

    (Universite du Maine, CEPREMAP)

  • Jean-Olivier Hairault

    (Universite de Paris I, CEPREMAP)

  • Francois Langot

    (University du Maine, CEPREMAP)

Abstract

Does wealth matter for labor market transitions? This paper aims at giving a quantitative answer to this question. Econometric reduced-form estimates on French panel data provide evidence of a significant wealth effect on the extensive margin of labor supply. Both unemployment duration and job quits rise with holdings of short-term liquid assets. This evidence gives support to the recent development of quantitative dynamic equilibrium search models incorporating precautionary savings. We consider such a model calibrated on French data and focus on the role of the option value of search and the disutility of working. In addition, we pay attention to the important interaction between the intensive and the extensive margins of labor supply. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/S1094-2025(02)00013-3
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 1 (January)
Pages: 156-178

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Handle: RePEc:red:issued:v:6:y:2003:i:1:p:156-178

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Related research

Keywords: Labor market transitions; Panel data; Job search theory; Incomplete markets; Savings;

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References

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  1. Dynarski, Mark & Sheffrin, Steven M, 1987. "Consumption and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(2), pages 411-28, May.
  2. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, Elsevier, vol. 7(2), pages 188-209, February.
  3. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
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  5. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers, Federal Reserve Bank of Minneapolis 502, Federal Reserve Bank of Minneapolis.
  6. Hernaes, E. & Strom, S., 1995. "Heterogeneity and Unemployment Duration," Memorandum, Oslo University, Department of Economics 28/1995, Oslo University, Department of Economics.
  7. B. Dormont & D. Fougère & A. Prieto, 2001. "L'effet de l'allocation unique dégressive sur la reprise d'emploi," THEMA Working Papers, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise 2001-05, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Stephen P. Jenkins, 1998. "Discrete time proportional hazards regression," Stata Technical Bulletin, StataCorp LP, StataCorp LP, vol. 7(39).
  10. Jovanovic, Boyan, 1987. "Work, Rest, and Search: Unemployment, Turnover, and the Cycle," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 5(2), pages 131-48, April.
  11. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2053, C.E.P.R. Discussion Papers.
  12. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 757-82, July.
  13. Bird, Edward J & Hagstrom, Paul A, 1999. "The Wealth Effects of Income Insurance," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 45(3), pages 339-52, September.
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