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Wealth Effect on Labor Market Transitions

  • 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)

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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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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  1. Hernaes, E. & Strom, S., 1995. "Heterogeneity and Unemployment Duration," Memorandum 28/1995, Oslo University, Department of Economics.
  2. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
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  8. Stephen P. Jenkins, 1998. "Discrete time proportional hazards regression," Stata Technical Bulletin, StataCorp LP, vol. 7(39).
  9. 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, vol. 45(3), pages 339-52, September.
  10. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
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  13. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
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