Advanced Search
MyIDEAS: Login to save this paper or follow this series

An Equilibrium Theory of Learning, Search and Wages

Contents:

Author Info

  • Francisco M. Gonzalez
  • Shouyong Shi

Abstract

We examine the labor market effects of incomplete information about the workers' own job-finding process. Search outcomes convey valuable information, and learning from search generates endogenous heterogeneity in workers' beliefs about their job-finding probability. We characterize this process and analyze its interactions with job creation and wage determination. Our theory sheds new light on how unemployment can affect workers' labor market outcomes and wage determination, providing a rational explanation for discouragement as the consequence of negative search outcomes. In particular, longer unemployment durations are likely to be followed by lower re-employment wages because a worker's beliefs about his job-finding process deteriorate with unemployment duration. Moreover, our analysis provides a set of useful results on dynamic programming with optimal learning.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-384.pdf
File Function: Main Text
Download Restriction: no

File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-384-1.pdf
File Function: Addendum
Download Restriction: no

Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-384.

as in new window
Length: 41 pages
Date of creation: 08 Dec 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-384

Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

Related research

Keywords: Learning; Wages; Unemployment; Directed search; Monotone comparative statics;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(3), pages 739-68, August.
  2. Edlin, Aaron S. & Shannon, Chris, 1998. "Strict Monotonicity in Comparative Statics," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(1), pages 201-219, July.
  3. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers, Stanford - Institute for Thoretical Economics 11, Stanford - Institute for Thoretical Economics.
  4. Lockwood, Ben, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(4), pages 733-53, July.
  5. Shouyong Shi & Guido Menzio, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," 2009 Meeting Papers, Society for Economic Dynamics 177, Society for Economic Dynamics.
  6. Stephen Nickell & Tracy Jones & Glenda Quintini, 2000. "A picture of job insecurity facing British men," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20141, London School of Economics and Political Science, LSE Library.
  7. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1425-54, September.
  8. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  9. Balvers, Ronald J. & Cosimano, Thomas F., 1993. "Periodic learning about a hidden state variable," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(5-6), pages 805-827.
  10. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, Econometric Society, vol. 67(1), pages 147-162, January.
  11. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  12. Santos, Manuel S, 1991. "Smoothness of the Policy Function in Discrete Time Economic Models," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1365-82, September.
  13. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  14. Nyarko, Yaw, 1994. "On the Convexity of the Value Function in Bayesian Optimal Control Problems," Economic Theory, Springer, Springer, vol. 4(2), pages 303-09, March.
  15. Burdett, Kenneth & Vishwanath, Tara, 1988. "Declining Reservation Wages and Learning," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 655-65, October.
  16. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  17. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  18. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(4), pages 1371-91, November.
  19. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  20. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, Econometric Society, vol. 77(2), pages 561-584, 03.
  21. Francisco M. Gonzalez & Shouyong Shi, 2007. "An Equilibrium Theory of Declining Reservation Wages and Learning," Working Papers, University of Toronto, Department of Economics tecipa-292, University of Toronto, Department of Economics.
  22. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195059366, October.
  23. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  24. Amir, Rabah, 1996. "Sensitivity analysis of multisector optimal economic dynamics," Journal of Mathematical Economics, Elsevier, vol. 25(1), pages 123-141.
  25. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, American Economic Association, vol. 101(7), pages 2873-98, December.
  26. Barron, John M & Bishop, John & Dunkelberg, William C, 1985. "Employer Search: The Interviewing and Hiring of New Employees," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 43-52, February.
  27. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, Econometric Society, vol. 52(5), pages 1117-27, September.
  28. Leonard J Mirman & Olivier F. Morand & Kevin L. Reffett, 2004. "A Qualitative Approach to Markovian Equilibrium in Infinite Horizon Economies with Capital," Levine's Bibliography 122247000000000224, UCLA Department of Economics.
  29. Amir, Rabah & Mirman, Leonard J & Perkins, William R, 1991. "One-Sector Nonclassical Optimal Growth: Optimality Conditions and Comparative Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 625-44, August.
  30. Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 17(3), pages 333-43, July.
  31. Gregg, Paul & Wadsworth, Jonathan, 2000. "Mind the Gap, Please: The Changing Nature of Entry Jobs in Britain," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 67(268), pages 499-524, November.
  32. Machin, Stephen & Manning, Alan, 1999. "The causes and consequences of longterm unemployment in Europe," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 47, pages 3085-3139 Elsevier.
  33. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, Elsevier, vol. 98(2), pages 232-260, June.
  34. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 955-69, July.
  35. Tricia Gladden & Michelle Alexopoulos, 2004. "The Effects of Wealth, and Unemployment Benefits on Search Behavior and Labor Market Transitions," Econometric Society 2004 North American Summer Meetings, Econometric Society 517, Econometric Society.
  36. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(3), pages 281-302, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-384. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.