Job Search and Savings: Wealth Effects and Duration Dependence

Rasmus Lentz and Torben Tranaes ()

No 2004-11, CAM Working Papers from University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics

Abstract: In this paper we study a risk averse worker's optimal savings and job-search behavior as she moves back and forth between employment and unemployment. Recent empirical findings suggest a negative association between a risk averse worker's search effort and wealth. We show that additively separable utility and bounded wealth imply that job search is negatively affected by wealth, and characterize the worker's consumption paths and wealth formation under these conditions. In general, all decisions will depend on the current level of wealth. Furthermore, given optimal search, savings still provide imperfect insurance against income fluctuations; precautionary savings are built up during employment spells and run down during unemployment spells but the consumption path is never going to be completely smooth over states. Finally, our results suggests that wealth introduces an element of positive duration dependence to the probability of leaving unemployment.

Keywords: Search; Consumption Smoothing; Duration Dependence (search for similar items in EconPapers)
JEL-codes: D1 J4 J6 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2002-01, Revised 2003-11
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Job Search and Savings: Wealth Effects and Duration Dependence (2005)
Working Paper: Job Search and Savings: Wealth Effects and Duration Dependence (2001)
Working Paper: Job Search and Savings: Wealth Effects and Duration Dependence
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