Assets and Job Choice: Student Debt, Wages and Amenities

Mi Luo and Simon Mongey

No 25801, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: If consumption and non-wage amenities of work enter utility, holding few assets may induce a trade-off between wages and amenities when searching for a job. We establish this in a model of search with asset accumulation, extended to accommodate amenities. We then provide empirical evidence of this trade-off in the context of student debt, finding that higher debt causes graduates to accept jobs with higher wages and lower job satisfaction. In a representative sample of college graduates, we infer causality by exploiting within-college, across cohort changes in financial aid. A quantitative extension of our theoretical framework that explicitly models student debt accounts well for our empirical results. Identifying the utility value of amenities through observed search behavior, we find that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. This trade-off is economically significant; a policy maker using only wage data to assess the welfare effects of with an income-based repayment policy would mistakenly conclude that graduates prefer a fixed repayment policy.

JEL-codes: E21 E24 J32 J38 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-lma, nep-mac and nep-upt
Note: EFG
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Citations: View citations in EconPapers (10)

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