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Real-Time Search in the Laboratory and the Market

  • Meta Brown
  • Christopher Flinn
  • Andrew Schotter

While widely accepted models of labor market search imply a constant reservation wage policy, the empirical evidence strongly suggests that reservation wages decline over the duration of a search spell. This paper reports the results of the first real-time search laboratory experiment. The controlled environment that subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wags decline sharply over time. We investigate two hypotheses to explain this decline: 1) searchers respond to the stock of accruing search costs, and 2) searchers experience nonstationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically.

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File URL: http://www.carloalberto.org/assets/working-papers/no.135.pdf
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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 135.

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Length: 41 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:cca:wpaper:135
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  1. Addison, John T & Portugal, Pedro, 1987. "On the Distributional Shape of Unemployment Duration," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 521-26, August.
  2. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  3. Ham, John C. & Kagel, John H. & Lehrer, Steven F., 2005. "Randomization, endogeneity and laboratory experiments: the role of cash balances in private value auctions," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 175-205.
  4. Bergstrom, R & Edin, P-A, 1992. "Time Aggregation and the Distributional Shape of Unemployment Duration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(1), pages 5-30, Jan.-Marc.
  5. Cox, James C & Oaxaca, Ronald L, 1989. " Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 301-29, September.
  6. John C. Ham & Xianghong Li & Lara Shore-Sheppard, 2009. "Seam Bias, Multiple-State, Multiple-Spell Duration Models and the Employment Dynamics of Disadvantaged Women," NBER Working Papers 15151, National Bureau of Economic Research, Inc.
  7. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  8. Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
  9. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
  10. Korpi, Tomas, 1995. "Effects of Manpower Policies on Duration Dependence in Re-employment Rates: The Example of Sweden," Economica, London School of Economics and Political Science, vol. 62(247), pages 353-71, August.
  11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  12. Salop, S C, 1973. "Systematic Job Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 40(2), pages 191-201, April.
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