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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 models of labor market search imply a constant reservation wage policy, the empirical evidence strongly suggests that reservation wages decline in the duration of search. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment that 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, and 2) searchers experience nonstationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 410.

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Date of creation: 2009
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Handle: RePEc:fip:fednsr:410

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Keywords: Labor market ; Job hunting ; Wages ; Employment;

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References

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  1. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  2. 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..
  3. 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.
  4. Christopher J. Flinn & James J. Heckman, 1982. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," NBER Working Papers 0979, National Bureau of Economic Research, Inc.
  5. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  6. Salop, S C, 1973. "Systematic Job Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 40(2), pages 191-201, April.
  7. Edin, P.A. & Bergstrom, R., 1991. "Time aggregation and the Distributional Shape of Unemployment Duration," Papers 1991u, Uppsala - Working Paper Series.
  8. 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.
  9. 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.
  10. 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.
  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. 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.
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Cited by:
  1. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.
  2. 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.
  3. Marianna Kudlyak & Damba Lkhagvasuren & Roman Susuyev, 2012. "Sorting by Skill over the Course of Job Search," Working Papers 12011, Concordia University, Department of Economics, revised 18 Apr 2012.

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  1. Real-Time Search in the Laboratory and the Market (AER 2011) in ReplicationWiki

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