Job Search and Savings: Wealth Effects and Duration Dependence
In this paper we consider a risk averse worker who is moving back and forth between employment and unemployment; layoffs are random and beyond the worker's influcence, while the re-employment chance is directly affected by search effort. We characterize the worker's optimal savings and job-search behavior as well as the resulting consumption paths and wealth formation. In general, all decisions will depend on the current level of wealth: First, the choice of search effort increases as wealth decreases; a finding which is in accordance with our empirical duration analysis using micro data on unemployment spells. Second, consumption increases with wealth both when the worker is employed and unemployed. Third, savings provide insurance against income fluctuations but this insurance is not perfect; precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path is never going to be completely smooth over states. Finally, our results suggest that the worker's search intensity and hence the probability of leaving unemployment will exhibit positive duration dependence over unemployment spells via its inverse relationship with the worker's wealth.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+45) 3532 4411
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/epru/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hopenhayn, H. & Nicolini, P.J., 1996.
"Optimal Unemployment Insurance,"
RCER Working Papers
421, University of Rochester - Center for Economic Research (RCER).
- Lars Ljungqvist & Thomas Sargent, 1999. "Matlab code for Hopenhayn-Nicolini's optimal unemployment insurance model," QM&RBC Codes 18, Quantitative Macroeconomics & Real Business Cycles.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Wang, Cheng & Williamson, Stephen D., 2002.
"Moral hazard, optimal unemployment insurance, and experience rating,"
Journal of Monetary Economics,
Elsevier, vol. 49(7), pages 1337-1371, October.
- Williamson, Stephen D. & Wang, Cheng, 1999. "Moral Hazard, Optimal Unemployment Insurance, and Experience Rating," Working Papers 99-03, University of Iowa, Department of Economics.
- Wang, Cheng & Williamson, Stephen D., 2002. "Moral Hazard, Optimal Unemployment Insurance and Experience Rating," Staff General Research Papers 10133, Iowa State University, Department of Economics.
- Daron Acemoglu & Robert Shimer, 1999.
"Efficient Unemployment Insurance,"
Journal of Political Economy,
University of Chicago Press, vol. 107(5), pages 893-928, October.
- Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
- Acemoglu, D. & Shimer, R., 1997. "Efficient Unemployment Insurance," Working papers 97-9, Massachusetts Institute of Technology (MIT), Department of Economics.
- Shavell, Steven & Weiss, Laurence, 1979.
"The Optimal Payment of Unemployment Insurance Benefits over Time,"
Journal of Political Economy,
University of Chicago Press, vol. 87(6), pages 1347-62, December.
- Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
- van den Berg, Gerard J & van Ours, Jan C, 1996.
"Unemployment Dynamics and Duration Dependence,"
Journal of Labor Economics,
University of Chicago Press, vol. 14(1), pages 100-125, January.
- Phelan, Christopher & Townsend, Robert M, 1991.
"Computing Multi-period, Information-Constrained Optima,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(5), pages 853-81, October.
- Phelan, C. & Townsend, R.M., 1990. "Computing Multiperiod, Information-Constrained Optima," University of Chicago - Economics Research Center 90-13, Chicago - Economics Research Center.
- Christopher Phelan & Robert M Townsend, 2010. "Computing Multi-Period, Information Constrained Optima," Levine's Working Paper Archive 117, David K. Levine.
- Bruce D. Meyer, 1988.
"Unemployment Insurance And Unemployment Spells,"
NBER Working Papers
2546, National Bureau of Economic Research, Inc.
- van den Berg, G. & van Ours, J.C., 1996. "Unemployment dynamics and duration dependence," Other publications TiSEM 4374742f-8d86-458d-9ab3-6, Tilburg University, School of Economics and Management.
- Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
- Browning, M. & Crossley, T., 1999.
"Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell,"
376, Australian National University - Department of Economics.
- Martin Browning & Thomas Crossley, . "Shocks, stocks and socks: consumption smoothing and the replacement of durables during an unemployment spell," Canadian International Labour Network Working Papers 27, McMaster University.
- Martin Browning & Thomas F. Crossley, 2000. "Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell," Econometric Society World Congress 2000 Contributed Papers 0386, Econometric Society.
- Browning, M. & Crossley, T., 1999. "Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell," ANU Working Papers in Economics and Econometrics 1999-376, Australian National University, College of Business and Economics, School of Economics.
- Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
- repec:tpr:qjecon:v:84:y:1970:i:1:p:113-26 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:kud:epruwp:01-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann)
If references are entirely missing, you can add them using this form.