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Labor Market Recoveries Across the Wealth Distribution

Authors: Daniele Caratelli

A new OFR Staff Discussion Paper by Daniele Caratelli studies how wealth affects workers’ willingness to change jobs in recessions and the implications for the economy at large. Switching jobs is a common way for workers to achieve wage growth. Despite the possible financial upside, switching jobs can be risky: often, it is first in, first out when it comes to layoffs. Workers must trade-off the higher wage from a new job with the stability from the existing one. Caratelli identifies and discusses what he calls the precautionary job-keeping motive. All else equal, low-wealth workers are not as willing to switch jobs compared to high-wealth workers because they are less able to take on the increased risk of layoff that comes with changing jobs. Low-wealth workers switch jobs less and experience lower wage growth relative to their high-wealth peers. Precautionary job-keeping can help explain earnings growth during recent recessions. The pandemic recession was different in this sense. Because of the large fiscal stimulus, workers’ wealth actually increased during the COVID-19 pandemic, alleviating the precautionary job-keeping motive and incentivizing workers to switch to higher-paying jobs.