Paper #649

Title:

Job search and asset accumulation under borrowing constraints

Author:

Silvio Rendon

Date:

October 2002

Abstract:

In this paper I show how borrowing constraints and job search interact. I fit a dynamic model to data from the National Longitudinal Survey (1979-cohort) and show that borrowing constraints are significant. Agents with more initial assets and more access to credit attain higher wages for several periods after high school graduation. The unemployed maintain their consumption by running down their assets, while the employed save to buffer against future unemployment spells. I also show that, unlike in models with exogenous income streams, unemployment transfers, by allowing agents to attain higher wages do not 'crowd out' but increase saving.

Keywords:

Job search, asset accumulation liquidity constraints, consumption, unemployment, estimation of dynamic structural models

JEL codes:

C33, E21, E24, J64

Area of Research:

Labour, Public, Development and Health Economics

Published in:

International Economic Review, Vol. 47, No. 1, pp. 233-263, February 2006

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