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Job Search and Savings: Wealth Effects and Duration Dependence

Author

Listed:
  • Rasmus Lentz

    (Boston University)

  • Torben Tranas

    (Rockwool Foundation Research Unit)

Abstract

This article studies a risk-averse worker's optimal savings and job search behavior as she moves back and forth between employment and unemployment. We show that job search effort is negatively related to wealth under the assumption of additively separable utility. Consequently, job search exhibits positive unemployment duration dependence because wealth is drawn down to smooth consumption as the spell progresses. Finally, 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 will not be perfectly smooth over states.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jlabec:v:23:y:2005:i:3:p:467-490
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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