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Assets and Job Choice: Student Debt, Wages and Amenities

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  • Mi Luo
  • Simon Mongey

Abstract

If consumption and non-wage amenities of work enter utility, holding few assets may induce a trade-off between wages and amenities when searching for a job. We establish this in a model of search with asset accumulation, extended to accommodate amenities. We then provide empirical evidence of this trade-off in the context of student debt, finding that higher debt causes graduates to accept jobs with higher wages and lower job satisfaction. In a representative sample of college graduates, we infer causality by exploiting within-college, across cohort changes in financial aid. A quantitative extension of our theoretical framework that explicitly models student debt accounts well for our empirical results. Identifying the utility value of amenities through observed search behavior, we find that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. This trade-off is economically significant; a policy maker using only wage data to assess the welfare effects of with an income-based repayment policy would mistakenly conclude that graduates prefer a fixed repayment policy.

Suggested Citation

  • Mi Luo & Simon Mongey, 2019. "Assets and Job Choice: Student Debt, Wages and Amenities," NBER Working Papers 25801, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25801
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    References listed on IDEAS

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    Cited by:

    1. Juan Carlos Parra-Alvarez & Olaf Posch & Mu-Chun Wang, 2017. "Estimation of Heterogeneous Agent Models: A Likelihood Approach," CESifo Working Paper Series 6717, CESifo.
    2. Gustavo Mellior, 2020. "Higher education funding, welfare and inequality in equilibrium," Economics Series Working Papers 908, University of Oxford, Department of Economics.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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