Job Search and Savings: Wealth Effects and Duration Dependence
AbstractIn this paper we study a risk averse worker's optimal savings and job-search behavior as she moves back and forth between employment and unemployment. Recent empirical findings suggest a negative association between a risk averse worker's search effort and wealth. We show that additively separable utility and bounded wealth imply that job search is negatively affected by wealth, and characterize the worker's consumption paths and wealth formation under these conditions. In general, all decisions will depend on the current level of wealth. Furthermore, given optimal search, savings still provide imperfect insurance against income fluctuations; precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path is never going to be completely smooth over states. Finally, our results suggests that wealth introduces an element of positive duration dependence to the probability of leaving unemployment.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2004-11.
Length: 23 pages
Date of creation: Jan 2002
Date of revision: Nov 2003
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Phone: (45) 35 32 30 74
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Web page: http://www.econ.ku.dk/CAM/
More information through EDIRC
Search; Consumption Smoothing; Duration Dependence;
Other versions of this item:
- Rasmus Lentz & Torben Tranas, 2005. "Job Search and Savings: Wealth Effects and Duration Dependence," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 467-490, July.
- Rasmus Lentz & Torben Tranaes, 2001. "Job Search and Savings: Wealth Effects and Duration Dependence," CESifo Working Paper Series 461, CESifo Group Munich.
- Rasmus Lenz & Torben Tranæs, . "Job Search and Savings: Wealth Effects and Duration Dependence," EPRU Working Paper Series 01-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- D1 - Microeconomics - - Household Behavior
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
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