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Financial intermediation and occupational choice

Jiajia Gu

Journal of Economic Dynamics and Control, 2021, vol. 133, issue C

Abstract: This paper explores how financial intermediation costs affect occupational choices, using a model with employers, own-account workers, and wage workers. An intermediation cost drives a wedge between the return on saving and the cost of borrowing that increases the cost of borrowing, reduces the return on saving, and depresses the wage rate. As a novel channel in this paper, a lower return on saving induces agents to seek self-employment to manage their wealth. Quantitatively, the observed variation in the intermediation cost explains about a quarter of cross-country differences in the share of own-account workers. In terms of policy implications, these findings suggest that governments should increase the efficiency of financial intermediation and provide households with better saving opportunities.

Keywords: Occupational choice; Self-employment; Own-account workers; Financial intermediation (search for similar items in EconPapers)
JEL-codes: J24 O16 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jedc.2021.104238

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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