Liquidity Constraints, Unemployed Job Search and Labour Market Outcomes

Abstract

Liquidity constraints prompt the unemployed to intensify their job search, but does that produce better labour market outcomes? Using longitudinal Australian data, we test the effect of objective proxy indicators of liquidity constraints on job search and concomitant labour market outcomes. We find that liquidity constraints, specifically their severe form ‘hardship’, intensify job search without improving short-run employment outcomes or objective job quality (if a job is secured), whereas subjective job quality outcomes are worse. Moreover, we find evidence that the quit intention is higher and the concomitant medium-run employment stability is lower for those who found jobs facing hardship.