Seminar in Makroökonomik Detail

Speaker:
Piotr Denderski (University of Leicester)

Wealth, Quits and Layoffs

^{(joint work with Alex Clymo and Laura Harvey)}

Abstract: Using worker-level panel data, we document that current wealth predicts the probability that a worker will transition from employment to non-employment. Low-wealth workers face a higher likelihood than the median worker, but so do the high-wealth workers. This U-shaped relationship is robust to a battery of controls and suggests that wealth feeds into the income process, creating a novel interaction between wealth and income distributions. We extend the standard incomplete markets model a la Aiyagari-Bewley-Huggett to include search frictions and jobs with heterogeneous unemployment risk and show that it can replicate our findings because i) low-wealth workers optimally accept higher-risk jobs to leave unemployment faster, and ii) high-wealth workers voluntarily quit to enjoy more leisure. Accounting for the non-trivial interactions between wealth and nonemployment matters for quantifying the precautionary savings motive, wealth mobility, and optimal unemployment insurance.

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