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Real-Time Search in the Laboratory and the Market

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  • Meta Brown
  • Christopher J. Flinn
  • Andrew Schotter

Abstract

While widely accepted labor market search models imply a constant reservation wage policy, empirical evidence strongly suggests that reservation wages decline in search duration. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1. Searchers respond to the stock of accruing search costs. 2. Searchers experience non-stationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically. (JEL C91, D83, J64)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.948
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 2 (April)
Pages: 948-74

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:2:p:948-74

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  1. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
  2. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
  3. Cox, James C & Oaxaca, Ronald L, 1989. " Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 301-29, September.
  4. Addison, John T & Portugal, Pedro, 1987. "On the Distributional Shape of Unemployment Duration," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 521-26, August.
  5. Edin, P.A. & Bergstrom, R., 1991. "Time aggregation and the Distributional Shape of Unemployment Duration," Papers 1991u, Uppsala - Working Paper Series.
  6. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  7. John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  9. Ham, John C. & Kagel, John H. & Lehrer, Steven F., 2005. "Randomization, endogeneity and laboratory experiments: the role of cash balances in private value auctions," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 175-205.
  10. John C. Ham & Xianghong Li & Lara Shore-Sheppard, 2009. "Seam Bias, Multiple-State, Multiple-Spell Duration Models and the Employment Dynamics of Disadvantaged Women," NBER Working Papers 15151, National Bureau of Economic Research, Inc.
  11. Korpi, Tomas, 1995. "Effects of Manpower Policies on Duration Dependence in Re-employment Rates: The Example of Sweden," Economica, London School of Economics and Political Science, vol. 62(247), pages 353-71, August.
  12. Salop, S C, 1973. "Systematic Job Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 40(2), pages 191-201, April.
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Cited by:
  1. Nicolas Jacquemet & Olivier l'Haridon & Isabelle Vialle, 2013. "Marché du travail, évaluation et économie expérimentale," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201322, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  2. Marianna Kudlyak & Damba Lkhagvasuren & Roman Sysuyev, 2012. "Sorting by skill over the course of job search," Working Paper 12-03, Federal Reserve Bank of Richmond.
  3. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.

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