A Search-Theoretic Explanation for the Negative Correlation between Labor Income and Impatience

16 Pages Posted: 4 Feb 2014

See all articles by Rubens Penha Cysne

Rubens Penha Cysne

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Date Written: August 14, 2004

Abstract

Lawrance (1991) has shown, through the estimation of consumption Euler equations, that subjective rates of impatience (time preference) in the U.S. are three to five percentage points higher for house holds with lower average labor incomes than for those with higher labor income. From a theoretical perspective, the sign of this correlation in a job-search model seems at first to be undetermined, since more impatient workers tend to accept wage offers that less impatient workers would not, thereby remaining less time unemployed. The main result of this paper is showing that, regardless of the existence of effects of opposite sign, and independently of the particular specifications of the givens of the model, less impatient workers always end up, in the long run, with a higher average income. The result is based on the (unique) invariant Markov distribution of wages associated with the dynamic optimization problem solved by the consumers. An example is provided to illustrate the method.

Keywords: Time preference, Wage, Income, Invariant Distribution, Search

JEL Classification: J30, J31

Suggested Citation

Cysne, Rubens Penha, A Search-Theoretic Explanation for the Negative Correlation between Labor Income and Impatience (August 14, 2004). Available at SSRN: https://ssrn.com/abstract=2390197 or http://dx.doi.org/10.2139/ssrn.2390197

Rubens Penha Cysne (Contact Author)

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil
+55-21-552-5099 (Phone)
+55-21-536-9409 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
34
Abstract Views
430
PlumX Metrics