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Liquid Wealth and Job Displacement Costs

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Abstract

We study the role of liquid wealth in job displacement costs using Swedish administrative data. Low-wealth hand-to-mouth workers experience substantially larger earnings losses after job loss than wealthier peers. Because earnings losses are largest for individuals least able to smooth consumption, standard estimates understate heterogeneity in welfare losses. The relationship between wealth and displacement costs persist after controlling for worker and employer characteristics that are highlighted in the displacement literature. Using parental death as an instrument for liquid wealth growth, we show that inheritances significantly reduce displacement costs for hand-to-mouth individuals but have no effect for wealthier workers.

Suggested Citation

  • Holmberg, Johan & Simmons, Michael & Telemo, Paul, 2026. "Liquid Wealth and Job Displacement Costs," Umeå Economic Studies 1043, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:1043
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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