Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 1043: Liquid Wealth and Job Displacement Costs

Johan Holmberg (), Michael Simmons () and Paul Telemo ()
Additional contact information
Johan Holmberg: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Michael Simmons: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Paul Telemo: Department of Economics, University of Strathclyde

Abstract: We study the role of liquid wealth in job displacement costs using Swedish administrative data. Low-wealth hand-to-mouth workers experience substantially larger earnings losses after job loss than wealthier peers. Because earnings losses are largest for individuals least able to smooth consumption, standard estimates understate heterogeneity in welfare losses. The relationship between wealth and displacement costs persist after controlling for worker and employer characteristics that are highlighted in the displacement literature. Using parental death as an instrument for liquid wealth growth, we show that inheritances significantly reduce displacement costs for hand-to-mouth individuals but have no effect for wealthier workers.

Keywords: Job displacement; Wealth; Hand-to-mouth; Job search; Earnings losses

JEL-codes: E24; J31; J62; J63; J64; J65

Language: English

41 pages, February 3, 2026

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