Liquidity Constraints in Optimal Job Search
Extreme cash shortages force unemployed workers to accept poorly matched, low-wage jobs prematurely because they cannot afford the daily transport and material costs required to continue searching for high-quality positions.
Picture this
Imagine a stranded hiker who runs out of food and water—instead of continuing to walk towards a town with comfortable hotels, they are forced to stop at the first emergency shelter they find. Relieving their immediate hunger allows them to keep walking until they reach the town with much better long-term living conditions.
What the evidence says
Median baseline search expenditure consumed 16% of total weekly expenditures (rising to 25% for 6-day searchers); receiving transport cash subsidies induced a temporary drop in low-quality work probability as cash-constrained youth substituted short-term casual work for active central job search.
- Who
- N = 3,052 youth job-seekers (aged 18–29, high school educated) in Addis Ababa, Ethiopia.
- How
- High-frequency fortnightly phone panel tracking job search expenditures, active search steps, and work status during cash voucher distribution.
What to do
Provide targeted cash liquidity transfers during active job hunting periods to prevent credit-constrained job-seekers from accepting sub-optimal, low-wage stopgap jobs.
From the source
"When resources for job search are exhausted, credit constrained job-seekers are forced to accept poorly-matched jobs."
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