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Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway

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  • Basten, Christoph
  • Fagereng, Andreas
  • Telle, Kjetil

Abstract

We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months' earnings at the median lowers the fraction re-employed after a year by six percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which favors an interpretation as liquidity constraints over the alternative of mental accounting. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62085.

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Date of creation: 2012
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Handle: RePEc:zbw:vfsc12:62085

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Web page: http://www.socialpolitik.org/
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  1. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  2. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
  3. Guido Imbens & Karthik Kalyanaraman, 2009. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," NBER Working Papers 14726, National Bureau of Economic Research, Inc.
  4. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-On-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1511-1560, November.
  5. Bratsberg, Bernt & Fevang, Elisabeth & Røed, Knut, 2010. "Disability in the Welfare State: An Unemployment Problem in Disguise?," IZA Discussion Papers 4897, Institute for the Study of Labor (IZA).
  6. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
  7. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
  8. Christoph Basten & Andreas Fagereng & Kjetil Telle, 2012. "Saving and portfolio allocation before and after job loss," Discussion Papers 672, Research Department of Statistics Norway.
  9. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
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Cited by:
  1. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer, vol. 2(1), pages 1-23, December.
  2. Tatsiramos, Konstantinos & van Ours, Jan C., 2012. "Labor Market Effects of Unemployment Insurance Design," IZA Discussion Papers 6950, Institute for the Study of Labor (IZA).

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