Financial Frictions and Occupational Mobility

Federal Reserve Bank of Kansas City Working Paper No. 12-06

29 Pages Posted: 18 Jan 2013 Last revised: 23 Jul 2016

See all articles by William B. Hawkins

William B. Hawkins

Yeshiva University

Jose Mustre-del-Rio

Federal Reserve Bank of Kansas City

Date Written: June 15, 2016

Abstract

We study the effects of financial market incompleteness on occupational mobility. Incomplete insurance not only generates an increase in consumption volatility, but also reduces occupational mobility. The correlation of labor supply with occupational productivity is lower than under complete markets. Low-asset workers remain in low-productivity occupations even when the expected value of switching is positive. Negative occupational productivity shocks therefore have larger effects on such workers' future earnings than they would for better insured workers. In a calibrated model, we find that the welfare costs of market incompleteness can be as large as 12 percent of lifetime consumption.

Keywords: occupational mobility

JEL Classification: D31, D52, E21, J24

Suggested Citation

Hawkins, William B. and Mustre-del-Rio, Jose, Financial Frictions and Occupational Mobility (June 15, 2016). Federal Reserve Bank of Kansas City Working Paper No. 12-06, Available at SSRN: https://ssrn.com/abstract=2201909 or http://dx.doi.org/10.2139/ssrn.2201909

William B. Hawkins

Yeshiva University ( email )

500 West 185th Street
New York, NY 10033
United States

Jose Mustre-del-Rio (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

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