In times of rising labor and skill shortages, the ability of workers to move where jobs are is of strong policy relevance. However, moving for work — whether it involves relocating or long-distance commute — comes with high upfront costs. The paper "Mitigating Mobility Frictions: The Effect of Cash-on-Hand on Labor Mobility" explores whether "cash-on-hand" can act as a catalyst for workers to overcome these barriers.
Economists have long debated the effects of cash benefits for the unemployed. One theory suggests that cash payments might dampen the effect of employment loss and therefore lessen workers’ urgency to find a new job. Another strand of the literature suggests that many workers are "liquidity constrained" — they want to move for work but simply cannot afford the security deposit on a new apartment, the cost of a moving truck, or the initial commuting expenses.
Result: Liquidity Wins
Using Austrian administrative data, Bekhtiar and Winter-Ebmer analyzed a unique legal threshold: in the Austrian system, workers laid off after three years of tenure were entitled to a severance payment equal to two months' salary, while those with less then 36 months tenure received nothing. By comparing workers just above and below this three-year cutoff, the researchers found that receiving the severance payment increased the probability of workers taking a job in a different region or commuting a longer distance by 6% to 10%. The effect was most pronounced among groups who typically face the highest barriers to moving, such as low-skilled workers and women. “Providing these workers with cash-payments helps ease these frictions and thereby stimulates their labor mobility”, conclude the authors.