Working Paper: NBER ID: w25801
Authors: Mi Luo; Simon Mongey
Abstract: If consumption and non-wage amenities of work enter utility, holding few assets may induce a trade-off between wages and amenities when searching for a job. We establish this in a model of search with asset accumulation, extended to accommodate amenities. We then provide empirical evidence of this trade-off in the context of student debt, finding that higher debt causes graduates to accept jobs with higher wages and lower job satisfaction. In a representative sample of college graduates, we infer causality by exploiting within-college, across cohort changes in financial aid. A quantitative extension of our theoretical framework that explicitly models student debt accounts well for our empirical results. Identifying the utility value of amenities through observed search behavior, we find that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. This trade-off is economically significant; a policy maker using only wage data to assess the welfare effects of with an income-based repayment policy would mistakenly conclude that graduates prefer a fixed repayment policy.
Keywords: student debt; job choice; wages; amenities
JEL Codes: E21; E24; J32; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Student Debt (G51) | Job Choice (J29) |
| Student Debt (G51) | Wages (J31) |
| Student Debt (G51) | Job Satisfaction (J28) |
| Student Debt (G51) | Unemployment Duration (J64) |
| Student Debt (G51) | Likelihood of Accepting Lower-Paying Jobs (J29) |