Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway

Christoph Basten, Andreas Fagereng and Kjetil Telle

No ECO2012/21, Economics Working Papers from European University Institute

Abstract: We identify the causal effect of lump-sum severance payments on nonemployment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months’ earnings at the median lowers the fraction re-employed after a year by seven percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which favors an interpretation as liquidity constraints over the alternative of mental accounting. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.

Keywords: Unemployment; Optimal Unemployment Insurance; Liquidity Constraints; Mental Accounting; Severance Pay; Regression Discontinuity Design (search for similar items in EconPapers)
JEL-codes: C41 E21 E24 J65 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eur, nep-ias and nep-lab
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Cash‐on‐hand and the Duration of Job Search: Quasi‐experimental Evidence from Norway (2014)
Working Paper: Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway (2012)
Working Paper: Cash-on-Hand and the duration of job search. Quasi-experimental evidence from Norway (2012)
Working Paper: Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway (2012)
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