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Re-employment expectations and realisations: Prediction errors and behavioural responses

Author

Listed:
  • Kassenboehmer, Sonja C.
  • Schatz, Sonja G.

Abstract

Using a nationally representative panel dataset, this study investigates the extent and impact of systematic misconceptions that the currently unemployed have about their prospect of re-employment. Such biased expectations are of interest because of their capacity to drive sub-optimal labour market behaviour. Specifically, people with unemployment experience of three to five years significantly underestimate their probability of re-employment. Simply having information about the individuals' previous unemployment experience is sufficient to produce more accurate predictions than those of the individuals themselves. People who underestimate their re-employment probability are less likely to search actively for a job and more likely to exit the labour force. If re-employed, they are more likely to accept lower wages, work fewer hours, work part-time and experience lower levels of life satisfaction. By improving the accuracy of re-employment expectations, employment agency caseworkers may use this information to enhance their clients' labour market decision-making and prevent adverse job-seeking behaviours.

Suggested Citation

  • Kassenboehmer, Sonja C. & Schatz, Sonja G., 2017. "Re-employment expectations and realisations: Prediction errors and behavioural responses," Labour Economics, Elsevier, vol. 44(C), pages 161-176.
  • Handle: RePEc:eee:labeco:v:44:y:2017:i:c:p:161-176
    DOI: 10.1016/j.labeco.2016.12.005
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    More about this item

    Keywords

    Job insecurity; Re-employment expectations; Prediction errors;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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