Job Search and Savings: Wealth Effects and Duration Dependence

By Rasmus Lentz, Torben Tranæs. Journal of Labor Economics, 2005

164 citations recorded by the source corpus.

This article studies a risk‐averse worker’s optimal savings and job search behavior as she moves back and forth between employment and unemployment. We show that job search effort is negatively related to wealth under the assumption of additively separable utility. Consequently, job search exhibits positive unemployment duration dependence because wealth is drawn down to smooth consumption as the spell progresses. Finally, 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 will not be perfectly smooth over states.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9a22acd7938dde04e9036d6a0d34bf1b536974d4

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Optimal unemployment insurance in an estimated job search model with savings (2009, background): “9 Generally, the signs and statistical significance of the β coefficients are similar to the reduced form estimates in Lentz and Tranæs (2002). It is seen that the signs of the age and education effects are negative.”
On-the-Job Search and Precautionary Savings (2013, background): “The theoretical literature includes the original contribution on risk aversion and reservations wages by Danforth (1979), and the recent contributions of Acemoglu and Shimer (1999), Costain (1999), Lentz and Tranaes (2005), Rendón (2006), Browning, Crossley, and Smith (2007), and Lentz (2009).”
Moving Back Home: Insurance against Labor Market Risk (2012, background): “…coresidence decisions; (iii) the class of models that incorporate a savings decision into a labor market search setting as in Danforth (1979), Lentz and Tranaes (2005), Low, Meghir, and Pistaferri (2010), and Lise (2011); (iv) the line of literature originally advocated by Deaton and Paxson…”
Joint-Search Theory: New Opportunities and New Frictions (2009, background): “T (w ; w2) = (w2) : This implies that the quit option is never exercised since any observed w1 will be greater than or equal to w : So, one can disregard the second argument in the max operator in (13) : Evaluating (13) at w yields”
Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market (2007, methodology): “10 In the baseline model with constant productivity of search, job- nding rates rise over time because assets and consumption fall as the spell elapses (Lentz and Tranaes 2005).”
Are Home Owners Really More Unemployed? (2006, background): “…of the first relationship, it could be argued that a higher housing wealth net of the mortgage debt decreases the escape rate out of unemployment – e.g., Lentz and Tranæs (2005) for a justification of this relationship in terms of financial wealth – and this relationship is absent for renters.”