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Job Search Costs and Incentives

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Author Info

  • Andriy Zapechelnyuk

    (Queen Mary, University of London)

  • Ro'i Zultan

    ()
    (Ben-Gurion University of the Negev)

Abstract

The 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 Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 693.

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Date of creation: Apr 2012
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Handle: RePEc:qmw:qmwecw:wp693

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Keywords: Job search; Moral hazard; Labor market; Unemployment insurance;

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References

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  1. Pries, Michael & Rogerson, Richard, 2009. "Search frictions and labor market participation," European Economic Review, Elsevier, vol. 53(5), pages 568-587, July.
  2. Peter Fredriksson & Bertil Holmlund, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," CESifo Working Paper Series 922, CESifo Group Munich.
  3. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
  5. Demougin, Dominique & Helm, Carsten, 2011. "Job matching when employment contracts suffer from moral hazard," European Economic Review, Elsevier, vol. 55(7), pages 964-979.
  6. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Manning, Alan, 2009. "You can't always get what you want: The impact of the UK Jobseeker's Allowance," Labour Economics, Elsevier, vol. 16(3), pages 239-250, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. When job search frictions are good
    by Economic Logician in Economic Logic on 2013-12-18 15:50:00

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