Job Search Costs and Incentives
AbstractThe costs of searching for a job vacancy are typically associated with friction that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is noncontractible, 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 InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 693.
Date of creation: Apr 2012
Date of revision:
Job search; Moral hazard; Labor market; Unemployment insurance;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
- NEP-CTA-2012-04-17 (Contract Theory & Applications)
- NEP-DGE-2012-04-17 (Dynamic General Equilibrium)
- NEP-IAS-2012-04-17 (Insurance Economics)
- NEP-LAB-2012-04-17 (Labour Economics)
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