Working Paper: CEPR ID: DP15460
Authors: Moritz Kuhn; Gasper Ploj
Abstract: Labor markets are characterized by large heterogeneity in job stability. Some workers hold lifetime jobs, whereas others cycle repeatedly in and out of employment. This paper explores the economic consequences of such heterogeneity. Using Survey of Consumer Finances (SCF) data, we document a systematic positive relationship between job stability and wealth accumulation. Per dollar of income, workers with more stable careers hold more wealth. We also develop a life-cycle consumption-saving model with heterogeneity in job stability that is jointly consistent with empirical labor market mobility, earnings, consumption, and wealth dynamics. Using the structural model, we explore the consequences of heterogeneity in job stability at the individual and macroeconomic level. At the individual level, we find that a bad start to the labor market leaves long-lasting scars. The income and consumption level for a worker who starts working life from an unstable job is, even 25 years later, 5 percent lower than that of a worker who starts with a stable job. For the macroeconomy, we find welfare gains of 1.6 percent of lifetime consumption for labor market entrants from a secular decline in U.S. labor market dynamism.
Keywords: employment risk; job stability; consumption-saving behavior
JEL Codes: J64; E21; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job stability (J63) | wealth accumulation (E21) |
| unstable job start (J63) | lower income and consumption 25 years later (P46) |
| unstable job start (J63) | reduced opportunities for human capital investment (J24) |
| higher job stability (J62) | better human capital investment opportunities (J24) |
| decline in labor market dynamism (J29) | welfare gains of 16% of lifetime consumption (D69) |
| transition to less stable job (J63) | welfare losses of up to 14% of lifetime consumption (D69) |