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Job Search Costs And Incentives

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  • Andriy Zapechelnyuk

    ()
    (School of Economics and Finance, Queen Mary, University of London, Mile End Road, London E1 4NS, UK)

  • Ro'i Zultan

    ()
    (Ben-Gurion University)

Abstract

The costs of searching for a job vacancy are typically associated with fric- tion that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is non- contractible, job search costs play a positive role, whose effect may outweigh the negative implications. As workers are provided incentives to exert effort by the threat of losing their job and having to search for a new vacancy, a reduction in job search costs leads to fewer employees willing to exert effort. The overall lower productivity will make more individuals and firms opting to stay out of the labor market, resulting in lower employment and decreased welfare. Eventually, a reduction of jobs search costs below a certain level results in collapse of the labor market.

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Bibliographic Info

Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 1307.

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Length: 23 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bgu:wpaper:1307

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Keywords: job search; moral hazard; labor market; unemployment insurance;

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References

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  1. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics.
  3. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
  4. Demougin, Dominique & Helm, Carsten, 2011. "Job matching when employment contracts suffer from moral hazard," European Economic Review, Elsevier, vol. 55(7), pages 964-979.
  5. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," NBER Working Papers 7352, National Bureau of Economic Research, Inc.
  6. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
  7. Manning, Alan, 2009. "You can't always get what you want: The impact of the UK Jobseeker's Allowance," Labour Economics, Elsevier, vol. 16(3), pages 239-250, June.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. When job search frictions are good
    by Economic Logician in Economic Logic on 2013-12-18 15:50:00

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