Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway

KOF Swiss Economic Institute Working Paper No. 299

35 Pages Posted: 24 Feb 2012

See all articles by Christoph Basten

Christoph Basten

University of Zurich; Swiss Finance Institute; CESifo (Center for Economic Studies and Ifo Institute)

Andreas Fagereng

BI Norwegian Business School; Statistics Norway

Kjetil Telle

Statistics Norway - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: February 13, 2012

Abstract

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 severance payment worth 1.2 months' earnings at the median lowers the fraction re-employed after a year by six percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which supports the view that the severance pay effect should be interpreted as evidence of liquidity constraints. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.

Keywords: Unemployment, Optimal Unemployment Insurance, Liquidity Constraints, Mental Accounting, Severance Pay, Regression Discontinuity Design

JEL Classification: C41, E21, E24, J65

Suggested Citation

Basten, Christoph and Fagereng, Andreas and Telle, Kjetil, Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway (February 13, 2012). KOF Swiss Economic Institute Working Paper No. 299, Available at SSRN: https://ssrn.com/abstract=2010099 or http://dx.doi.org/10.2139/ssrn.2010099

Christoph Basten (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Andreas Fagereng

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Kjetil Telle

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

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