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Financial Frictions and Occupational Mobility

Author

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  • Jose Mustre-del-Rio

    (Federal Reserve Bank of Kansas City)

  • William Hawkins

    (University of Rochester)

Abstract

We study the effects of financial market incompleteness on occupational mobility. Incomplete insurance not only generates an increase in consumption volatility, but also a reduction in occupational mobility and a worsening of occupational matching. The correlation between occupation-level productivity and labor supply is lower than under complete markets. Low-asset workers remain in low-productivity occupations even when the expected value of switching is positive. Negative occupational productivity shocks therefore have larger effects on such workers’ future earnings than they would for better insured workers. In a calibrated model, we find that the welfare costs of market incompleteness can be as large as 25 percent of lifetime consumption.

Suggested Citation

  • Jose Mustre-del-Rio & William Hawkins, 2012. "Financial Frictions and Occupational Mobility," 2012 Meeting Papers 1123, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1123
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    References listed on IDEAS

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    Cited by:

    1. German Cubas & Pedro Silos, 2020. "Social Insurance And Occupational Mobility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 219-240, February.
    2. Jacob Wong, 2012. "Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality," School of Economics Working Papers 2012-04, University of Adelaide, School of Economics.

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