Wealth accumulation, on-the-job search and inequality.

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Date: May 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 331 words

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Abstract :

Keywords Wealth accumulation; On-the-job search; Inequality; Directed search Highlights * We study a directed search equilibrium with risk-averse workers and borrowing limits. * Workers are allowed to search on and off the job and to accumulate wealth. * Savings and directed job search provide workers with substantial self-insurance. * The interactions of wealth and job search decisions generate sizeable wage inequality. * There is a limited role for unemployment insurance as self-insurance is effective. Abstract We study a directed search equilibrium with risk-averse workers who can search on the job and accumulate non-contingent assets under a borrowing limit. Search outcomes affect earnings and wealth accumulation. In turn, wealth and earnings affect search decisions by changing the optimal trade-off between the wage and the matching probability. The interaction between search and wealth provides important self-insurance. The calibrated model yields significant wage inequality as measured by the mean-min ratio in wages. We analyze the dynamic welfare effects of changes in unemployment insurance and find a relatively limited role for unemployment insurance as self-insurance significantly reduces consumption risk. Author Affiliation: (a) 229 Harkness Hall, Department of Economics, University of Rochester, Rochester, NY, 14627, USA (b) Queen's University, Kingston, Ontario, Canada * Corresponding author. Article History: Received 17 June 2020; Revised 22 March 2022; Accepted 23 March 2022 (footnote)[white star] An associate editor and a referee gave us helpful suggestions that improved the paper. This paper was presented at the Southern Economic Association meeting, Atlanta Federal Reserve Bank, the Society for Economic Dynamics meeting, Shanghai Macro Workshop, the Econometric Society European meeting, the Econometric Society Summer meeting, the Society for the Study of Economic Inequality, the European Search and Matching Network workshop, Universidad Nacional de Cuyo (Argentina), Universidad de San Andres (Argentina), Midwest Macro meeting, Washington University in St. Louis, and Cornell-PSU macro workshop. We would like to thank Julieta Caunedo, Kyle Herkenhoff, Jeremy Lise, Jim Tybout, Neil Wallace, Randall Wright and the conference/seminar participants for comments. Byline: Gaston Chaumont [gaston.chaumont@rochester.edu] (*,a), Shouyong Shi (b)

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Gale Document Number: GALE|A703193415