Job Market Signaling and Job Search
AbstractThe 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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Bibliographic InfoPaper provided by Kyiv School of Economics in its series Discussion Papers with number 10.
Date of creation: Jul 2008
Date of revision: Sep 2008
Note: Under review in American Economic Review
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Signaling; job market; job search; separating equilibrium; unemployment; moral hazard;
Other versions of this item:
- Andriy Zapechelnyuk & Ro'i Zultan, 2008. "Job Market Signaling and Job Search," Discussion Paper Series dp488, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Andriy Zapechelnyuk & Ro'i Zultan, 2008. "Job Market Signalling and Job Search," Levine's Working Paper Archive 122247000000002301, David K. Levine.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-06 (All new papers)
- NEP-CTA-2008-08-06 (Contract Theory & Applications)
- NEP-DGE-2008-08-06 (Dynamic General Equilibrium)
- NEP-LAB-2008-08-06 (Labour Economics)
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