Labor markets feature large heterogeneity in employment stability: some careers provide lifetime employment, while others involve frequent transitions in and out of work. While this heterogeneity shapes earnings dynamics and labor market risk, its implications for household saving behavior remain poorly understood. We document two new empirical facts. More stable careers (i) exhibit steeper life-cycle earnings growth and (ii) accumulate significantly more wealth per dollar of income, even within narrowly defined worker groups.
To interpret these facts, we develop a life-cycle search-and-saving model with heterogeneous employment stability, job-to-job mobility, endogenous human capital accumulation, and incomplete markets. The model matches both life-cycle earnings and wealth dynamics across careers. Our central finding is that heterogeneity in employment stability reshapes the nature of saving. Stable careers generate sustained earnings growth with a focus on life-cycle saving, while unstable careers are characterized by precautionary, buffer-stock behavior that limits long-run wealth accumulation. Quantitatively, differential earnings growth accounts for about 60% of the wealth gap across careers.
These microeconomic differences have important macroeconomic implications. We demonstrate that heterogeneity in employment stability amplifies wealth inequality and substantially increases the macroeconomic consumption response to unemployment shocks.