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Going the Extra Mile: Effort by Workers and Job‐Seekers

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  • MATTHIAS S. HERTWECK
  • VIVIEN LEWIS
  • STEFANIA VILLA

Abstract

In the search‐and‐matching model, equilibrium indeterminacy obtains when wages respond strongly to a labor market tightening, and hiring is very elastic. We introduce two types of effort into such a model. Variable labor effort gives rise to short‐run increasing returns to hours in production. This amplifies profit expectations and firms' hiring incentives expanding the indeterminacy region. Variable search effort makes workers search more intensively in a tighter labor market. The procyclical nature of the resource cost of searching stabilizes firms' inclination to hire, shrinking the indeterminacy region. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs.

Suggested Citation

  • Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
  • Handle: RePEc:wly:jmoncb:v:53:y:2021:i:8:p:2099-2127
    DOI: 10.1111/jmcb.12778
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    Cited by:

    1. Maarten Dossche & Andrea Gavazzi & Vivien Lewis, 2023. "Labor Adjustment and Productivity in the OECD," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 111-130, January.
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    3. Lewis, Vivien & Villa, Stefania & Wolters, Maik H., 2019. "Labor productivity, effort and the euro area business cycle," Discussion Papers 44/2019, Deutsche Bundesbank.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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