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Financial intermediation and occupational choice

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  • Gu, Jiajia

Abstract

This paper explores how financial intermediation costs affect occupational choices, using a model with employers, own-account workers, and wage workers. An intermediation cost drives a wedge between the return on saving and the cost of borrowing that increases the cost of borrowing, reduces the return on saving, and depresses the wage rate. As a novel channel in this paper, a lower return on saving induces agents to seek self-employment to manage their wealth. Quantitatively, the observed variation in the intermediation cost explains about a quarter of cross-country differences in the share of own-account workers. In terms of policy implications, these findings suggest that governments should increase the efficiency of financial intermediation and provide households with better saving opportunities.

Suggested Citation

  • Gu, Jiajia, 2021. "Financial intermediation and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
  • Handle: RePEc:eee:dyncon:v:133:y:2021:i:c:s0165188921001731
    DOI: 10.1016/j.jedc.2021.104238
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    More about this item

    Keywords

    Occupational choice; Self-employment; Own-account workers; Financial intermediation;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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