The Effects of Wealth, and Unemployment Benefits on Search Behavior and Labor Market Transitions

Abstract

During the past decade, many researchers have examined the theoretical predictions of labor search models with endogenous job search intensity. For a risk adverse individual, search intensity depends on variables such as individual wealth and the level of unemployment benefits. Since wealth and unemployment benefits affect search intensity, they also affect the duration of unemployment spells. Although there are a small number of papers that empirically estimate the relationship between search intensity and unemployment benefits, none focus on the effects of savings on search intensity. This omission is primarily due to the lack of suitable datasets. To determine the effects of wealth and unemployment benefits on search intensity and unemployment duration, we estimate a simultaneous equation model of search intensity, reservation wages, labor market transitions and wealth using a sample from the 1984 Survey of Income and Program Participation. We examine whether wealth and unemployment insurance have different effects on the intensive search margin (the number of contacts) and the extensive search margin (the number of search methods). Our results yield insights into the effectiveness of different methods of search, the effect of the unemployment insurance benefits, and the magnitude of the discouraged worker effect in the U.SLabor Market Transitions, Search Behavior