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Directed search with saving / von Bálint Szöke
AuthorSzöke, Bálint
CensorPapp, Tamás
DescriptionIV, 41 Bl. : graph. Darst.
Institutional NoteWien, Techn. Univ., Master Thesis, 2013
Document typeMaster Thesis
URNurn:nbn:at:at-ubtuw:1-68561 Persistent Identifier (URN)
 The work is publicly available
Directed search with saving [0.86 mb]
Abstract (English)

Using a two-period directed search model with wage-tenure contracts, this paper investigates the role of saving decisions in the determination of labor market outcomes. I find that wealthier unemployed workers apply for jobs that pay higher present value of income and that are harder to obtain than jobs targeted by poorer workers. On the other hand, introducing the possibility of saving brings indeterminacy into the model in the sense that the particular wage path (contract) chosen by the agents is not unique. The reason is that if workers can perfectly smooth their consumption, in effect, they will behave as if they were risk-neutral and will be indifferent to different wage paths yielding the same present value. In order to address this issue, I introduce two extensions: on-the-job search and borrowing constraint, which work in opposite directions. Onthe- job search gives rise to the incentive of firms to offer an increasing wage path (pay wages as late as possible) in order to keep their employees. On the other hand, borrowing constraints prevent workers from smoothing consumption perfectly, and as a result they wish to receive wages as early as possible. The introduction of these two elements eventually makes the equilibrium contract determinate for constrained workers and surprisingly, this contract happens to provide higher present value (conditional on matching) and lower matching probability than the contracts workers would choose if they were unconstrained. In addition, in my two-period model with onthe-job search it turns out that in equilibrium no on-the-job search takes place.

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