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Job Market Signaling and Job Search

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  • Andriy Zapechelnyuk

    ()

  • Ro'i Zultan

    ()

Abstract

The high cost of searching for employers borne by prospective employees increases friction in the labor market and inhibits formation of efficient employer-employee relationships. It is conventionally agreed that mechanisms that reduce the search costs (e.g., internet portals for job search) lower unemployment and improve overall welfare. We demonstrate that a reduction of the search costs may have the converse effect. We consider a labor market in which workers can either establish a long-term relationship with an employer by being productive, or shirk and move from one employer to the next. In addition, the workers can signal to a potential employer their intention to be productive. We show that lower search costs lead to fewer employees willing to exert effort and, in a separating equilibrium, to more individuals opting to stay completely out of the job market and remain unemployed. Furthermore, we show that lower search costs not only deteriorate the market composition, but also impair efficiency by leading to more expensive signaling in a separating equilibrium.

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Bibliographic Info

Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp488.

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Length: 24 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:huj:dispap:dp488

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  1. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
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  8. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
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  10. David Pearce & Ben Groom & Cameron Hepburn & Phoebe Koundouri, 2003. "Valuing the Future," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(2), pages 121-141, April.
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  12. Ariel Rubinstein, 2004. "Dilemmas of an Economic Theorist," Econometric Society 2004 North American Summer Meetings 661, Econometric Society.
  13. Osipian, Ararat, 2007. "Higher education corruption in Ukraine as reflected in the nation’s media," MPRA Paper 8464, University Library of Munich, Germany.
  14. Spence, Michael, 1974. "Competitive and optimal responses to signals: An analysis of efficiency and distribution," Journal of Economic Theory, Elsevier, vol. 7(3), pages 296-332, March.
  15. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
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