FSS-DECO seminar: Liquidity and Labor Misallocation

Speaker: Prof. Chul-In LEE, Professor, Department of Economics, Seoul National University, Korea

Date: 3 Dec 2025 (Wednesday)

Time: 14:00-15:15

Language: English

Venue: E21B-G002

Abstract: We examine how liquidity affects the occupational choices of the unemployed. Using a Roy model with risk-averse agents, we demonstrate how differences in liquidity levels during unemployment affect sectoral choices, given individuals’ comparative skill advantages, and identify the conditions under which labor misallocation may arise. Based on CPS-ASEC data, we develop a new measure of disposable liquidity and examine its effects on labor market outcomes associated with misallocation. Our results suggest that financially constrained individuals are more likely to choose occupations misaligned with their skill advantages, whereas those with greater liquidity are more likely to achieve productive labor allocation.