Labor Market Recoveries Across the Wealth Distribution

Switching jobs is risky: often, it is first in, first out when it comes to layoffs. Workers must trade-off between the higher wage from a new job and the stability from an existing job. This paper discusses a precautionary job-keeping motive, which disincentivizes low-wealth workers from moving to new jobs because of the risks attached to switching jobs. This motive explains up to half of the earnings gap between low- and high-wealth workers following the 2007-09 recession. During the COVID-19 pandemic, this phenomenon became much weaker as a result of the government’s fiscal stimulus, which helped workers bear the risk associated with switching to new, higher-paying jobs.

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