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Wealth Accumulation, On the Job Search and Inequality

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Listed:
  • Shouyong Shi

    (Pennsylvania State University)

  • Gaston Chaumont

    (Pennsylvania State University)

Abstract

To study equilibrium interactions between wealth accumulation and labor market search, this paper constructs a model where individuals can accumulate non-contingent assets under a borrowing limit, all workers can search for jobs, and search is directed. On-the-job search generates a wage ladder, which affects inequalities in earnings, wealth and consumption. Employed workers have incentive to save as a precaution for exogenous separation into unemployment. In the reverse direction, wealth and earnings affect search decisions by changing the optimal tradeoff between the wage and the matching probability. The calibrated model reveals that wealth significantly reduces a worker's transition rates from unemployment to employment and from one job to another. Moreover, search frictions increase wealth inequality significantly by increasing the mass of wealthy individuals and lengthening the right tail of the wealth distribution. However, the effect of wealth on job search widens frictional wage dispersion by only a small amount. In addition, on-the-job search is important for frictional wage dispersion.

Suggested Citation

  • Shouyong Shi & Gaston Chaumont, 2017. "Wealth Accumulation, On the Job Search and Inequality," 2017 Meeting Papers 128, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:128
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    References listed on IDEAS

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    Cited by:

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    2. François Fontaine & Janne Nyborg Jensen & Rune Vejlin, 2019. "Wealth, Portfolios, and Unemployment Duration," 2019 Meeting Papers 949, Society for Economic Dynamics.
    3. Rincón-Zapatero, Juan Pablo & Jerez, Belén & Díaz, Antonia, 2019. "Housing Prices and Credit Constraints in Competitive Search," UC3M Working papers. Economics 28874, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Jan Eeckhout & Alireza Sepahsalari, 2020. "The Effect of Wealth on Worker Productivity," Bristol Economics Discussion Papers 20/731, School of Economics, University of Bristol, UK.
    5. Kevin Fawcett & Shouyong Shi, 2018. "Learning, On-the-Job Search and Wage-Tenure Contracts," Working Papers tecipa-597, University of Toronto, Department of Economics.
    6. Jiyeon Kim, 2019. "Skill-Biased Technological Change, Inequality, and the Role of Retraining," Working Paper 7116, Department of Economics, University of Pittsburgh.
    7. Jan Eeckhout & Alireza Sepahsalari, 2020. "The Effect of Wealth on Worker Productivity," Bristol Economics Discussion Papers 20/731, School of Economics, University of Bristol, UK.
    8. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.

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