Abstract
Our paper studies the causes of poverty from the perspective of job search. We show that poor people remain poor because they have less time and initial endowment to search for a better job. Initial endowment is key to successful job search, as one can afford not to work and search longer for a better job. Having an initial endowment, a worker is able to educate or re-qualify himself. Working long hours and obtaining low pay, poor people have little time to look for a better job. Low-paid, low-skilled jobs rarely allow on-the-job search like high-paid positions where with the help of contacts and a lot of idle time professionals seek better jobs. Quitting in order to find a better job increases the opportunity cost of search for poorer people. Since they do not have any accumulated income, they can only live off their salary. With less income and time, poorer people are less likely to get educated since education requires both wealth and free time. But being less educated, they are likely to remain poor as education is a promise for success in contemporary society. Thus, they remain in the vicious circle of poverty. In order to prove this hypothesis we investigate optimal search time for a better job as dependent on factors such as wage rate, individual’s income, education, and skills.
Highlights
Poor, uneducated people are often said to remain in the vicious circle of poverty and it is a trap for many in the world economy on the eve of a new century
We show that poor people remain poor because they have less time and initial endowment to search for a better job
We assume that a better job is one that pays a wage rate beyond the minimal one wo because in the labor market higher wage is associated with higher labor productivity, i.e., the job is of greater value both for the individual and for the firm
Summary
Poor, uneducated people are often said to remain in the vicious circle of poverty and it is a trap for many in the world economy on the eve of a new century. There are various ways in which poverty plagues workers around the globe–in our paper we study just two mechanisms Those are the lack of time to search for a better job, while overwhelmed by a low-paid one, and the lack of initial endowment or wealth. We study optimal search time for a better job as dependent on factors such as wage rate, individual’s income, education, and skills. We develop a basic out-of-the job search model that focuses on how optimal time and opportunity cost differ among low-income and high-income individuals, ceteris paribus, that is, given they have the same initial tastes, talents, and ability rents. The opportunity cost of human capital investment depends on family incomes because families should pay for the post-secondary schooling required to gain additional skills In this sense, wealthy agents can finance their education on better terms and in general can invest more and boost future earnings.
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