Dear Economist: Hard cash or a secure job – which is better?

I work with an international bank, but have recently been laid off. Fortunately, I have managed to land myself another job in this very tough job market (yes, in India too!).

The catch is that my current employer is offering me a severance package of around 20 months pay – but only if I stick around for six more weeks, while the other company wants me to join as soon as possible.

One option gives me a pile of hard cash, but uncertainty and the stigma of unemployment. The other option is a secure and cushy job. And, another thing: India does not have any unemployment benefits.

P.M., India

Dear P.M.,

I’m not surprised you’re tempted by the severance package, especially with two companies fighting over who employs you for the next six weeks – a great boost to your ego.

Still, I’d urge you not to get too confident. An economics PhD student at MIT, Johannes Spinnewijn, recently published a research paper showing that most unemployed people are too cocky about their prospects of finding a new job. On average, they expect seven weeks of unemployment, but eventually endure 23 weeks. And this is using data from the mid-1990s, not recession years. Be warned, then: don’t let overconfidence lure you into undervaluing the guarantee of a good job.

A better approach would be to negotiate a compromise. Surely there is a way to secure the new job without losing all the severance pay – perhaps involving part-time work for both companies for the next two months.

If you do decide to turn down the new job and look again with severance pay in hand, look very hard indeed. Spinnewijn’s research shows that job-seekers tend to harbour another misperception: that an energetic job search does not pay dividends. They are wrong.

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.