Job Stability, Earnings Dynamics, and Life-Cycle Savings

83 Pages Posted: 24 Nov 2020

See all articles by Moritz Kuhn

Moritz Kuhn

University of Bonn

Gašper Ploj

University of Bonn

Multiple version iconThere are 3 versions of this paper

Date Written: 2020

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.

JEL Classification: J640, E210, E240

Suggested Citation

Kuhn, Moritz and Ploj, Gašper, Job Stability, Earnings Dynamics, and Life-Cycle Savings (2020). CESifo Working Paper No. 8710, Available at SSRN: https://ssrn.com/abstract=3736492

Moritz Kuhn (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Gašper Ploj

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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