Cash-on-hand and the duration of job search : quasi-experimental evidence from Norway
Journal article, Peer reviewed
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Original versionThe economic journal, 2014, Vol. 124, No. 576, pp. 540-568 https://doi.org/10.1111/ecoj.12135
We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a payment worth 1.2 months’ earnings at the median lowers the fraction re-employed after a year by about eight percentage points. This is what we would expect if liquidity constraints force unemployed workers to accept a job offer earlier than would be optimal. As further support for the liquidity story, we use data on wealth before unemployment to show that the effect of non-employment duration occurs for the non-wealthy only. Keywords: Unemployment, Optimal Unemployment Insurance, Liquidity Constraints, Severance Pay, Regression Discontinuity Design.
First published: 23 May 2014