Employment Stability, Earnings Dynamics, and Life-Cycle Savings

Moritz Kuhn (), Leanne Nam and Gasper Ploj
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Moritz Kuhn: University of Mannheim and Macro Inequality Lab
Leanne Nam: University of Mannheim and Macro Inequality Lab
Gasper Ploj: Banka Slovenije

No 18754, IZA Discussion Papers from IZA Network @ LISER

Abstract: Labor markets feature heterogeneity in employment stability: some careers offer lifetime employment, while others involve frequent transitions in and out of work. While this heterogeneity shapes earnings dynamics and labor market risk, its implications for household saving remain poorly understood. We show two empirical facts. More stable careers (i) exhibit steeper life-cycle earnings growth and (ii) accumulate significantly more wealth per dollar of income, even within narrowly defined worker groups. We develop a life-cycle search-and-saving model with heterogeneous employment stability, job-to-job mobility, endogenous human capital accumulation, and incomplete markets. It matches life-cycle earnings and wealth dynamics across careers. We find that heterogeneity in employment stability reshapes the nature of saving. Stable careers generate sustained earnings growth focused on life-cycle saving, while unstable careers are characterized by precautionary, buffer-stock behavior. Quantitatively, differential earnings growth accounts for about 60% of the wealth gap across careers. Heterogeneity in employment stability amplifies wealth inequality and substantially increases the macroeconomic consumption response to unemployment shocks.

Keywords: employment risk; employment stability; consumption-saving behavior (search for similar items in EconPapers)
JEL-codes: E21 E24 J64 (search for similar items in EconPapers)
Date: 2026-06
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