Job Search and Savings: Wealth Effects and Duration Dependence
In this paper we study a risk averse worker's optimal savings and job-search behavior as she moves back and forth between employment and unemployment. Recent empirical findings suggest a negative association between a risk averse worker's search effort and wealth. We show that additively separable utility and bounded wealth imply that job search is negatively affected by wealth, and characterize the worker's consumption paths and wealth formation under these conditions. In general, all decisions will depend on the current level of wealth. Furthermore, 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 is never going to be completely smooth over states. Finally, our results suggests that wealth introduces an element of positive duration dependence to the probability of leaving unemployment.
|Date of creation:||Jan 2002|
|Date of revision:||Nov 2003|
|Contact details of provider:|| Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark|
Phone: (45) 35 32 30 74
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/CAM/
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.:
- Christopher Phelan & Robert M Townsend, 2010.
"Computing Multi-Period, Information Constrained Optima,"
Levine's Working Paper Archive
117, David K. Levine.
- Phelan, C. & Townsend, R.M., 1990. "Computing Multiperiod, Information-Constrained Optima," University of Chicago - Economics Research Center 90-13, Chicago - Economics Research Center.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
- Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997.
"Optimal Unemployment Insurance,"
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 412-38, April.
- Lars Ljungqvist & Thomas Sargent, 1999. "Matlab code for Hopenhayn-Nicolini's optimal unemployment insurance model," QM&RBC Codes 18, Quantitative Macroeconomics & Real Business Cycles.
- Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
- Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
- Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
- Williamson, Stephen D. & Wang, Cheng, 1999.
"Moral Hazard, Optimal Unemployment Insurance, and Experience Rating,"
99-03, University of Iowa, Department of Economics.
- 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.
- Wang, Cheng & Williamson, Stephen D., 2002. "Moral Hazard, Optimal Unemployment Insurance and Experience Rating," Staff General Research Papers Archive 10133, Iowa State University, 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.
- Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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," Papers 376, Australian National University - Department of Economics.
- 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.
- Daron Acemoglu & Robert Shimer, 1998.
"Efficient Unemployment Insurance,"
NBER Working Papers
6686, National Bureau of Economic Research, Inc.
- Berg, G.J. & Ours, J.C., 1993.
"Unemployment dynamics and duration dependence,"
Serie Research Memoranda
0022, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
- Bruce D. Meyer, 1988.
"Unemployment Insurance And Unemployment Spells,"
NBER Working Papers
2546, National Bureau of Economic Research, Inc.
- Christopher Phelan & Robert M. Townsend, 1991. "Computing Multi-Period, Information-Constrained Optima," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 853-881.
When requesting a correction, please mention this item's handle: RePEc:kud:kuieca:2004_11. 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.