Wealth effect on labor market transitions

Yann Algan (1) , Arnaud Chéron (2, 3) , Jean-Olivier Hairault (1, 3) , François Langot (2, 3)

1 CES - Centre d'économie de la Sorbonne
2 GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux
3 CEPREMAP - Centre pour la recherche économique et ses applications

Does wealth matter for labor market transitions? This paper aims at giving a quantitative answer to this question. Econometric reduced-form estimates on French panel data provide evidence of a significant wealth effect on the extensive margin of labor supply. Both unemployment duration and job quits rise with holdings of short-term liquid assets. This evidence gives support to the recent development of quantitative dynamic equilibrium search models incorporating precautionary savings. We consider such a model calibrated on French data and focus on the role of the option value of search and the disutility of working. In addition, we pay attention to the important interaction between the intensive and the extensive margins of labor supply.

Mots clés: Labor market transitions; Panel data; Job search theory; Incomplete markets; Savings

Domaines: Economies et finances

Yann Algan, Arnaud Chéron, Jean-Olivier Hairault, François Langot. Wealth effect on labor market transitions. Review of Economic Dynamics, 2003, 6 (1), pp.156-178. ⟨10.1016/S1094-2025(02)00013-3⟩. ⟨hal-03637025⟩