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Job Market Signaling and Job Search

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Author Info

  • Andriy Zapechelnyuk

    ()
    (Kyiv School of Economics)

  • Ro'i Zultan

    (Hebrew University of Jerusalem)

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 show that in a signaling job market with random matching 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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File URL: http://repec.kse.org.ua/pdf/KSE_dp10.pdf
File Function: Revised version, September 2008
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Bibliographic Info

Paper provided by Kyiv School of Economics in its series Discussion Papers with number 10.

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Date of creation: Jul 2008
Date of revision: Sep 2008
Handle: RePEc:kse:dpaper:10

Note: Under review in American Economic Review
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Keywords: Signaling; job market; job search; separating equilibrium; unemployment; moral hazard;

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  1. Gerorg N�ldeke & Larry Samuelson, . "A Dynamic Model of Equilibrium Selection In Signaling Markets," ELSE working papers 038, ESRC Centre on Economics Learning and Social Evolution.
  2. Ariel Rubinstein, 2006. "Dilemmas of an Economic Theorist," Econometrica, Econometric Society, vol. 74(4), pages 865-883, 07.
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  8. 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.
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  10. 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.
  11. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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  13. 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.
  14. Osipian, Ararat, 2007. "Higher education corruption in Ukraine as reflected in the nation’s media," MPRA Paper 8464, University Library of Munich, Germany.
  15. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  16. 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.
  17. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  18. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
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