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Job Market Signaling and Job Search

  • Andriy Zapechelnyuk

    ()

    (Kyiv School of Economics)

  • Ro'i Zultan

    (Hebrew University of Jerusalem)

The high cost of searching for employers borne by prospective employees increases friction in the labor market and inhibits formation of efficient employer-employee relationships. It is conventionally agreed that mechanisms that reduce the search costs (e.g., internet portals for job search) lower unemployment and improve overall welfare. We demonstrate that a reduction of the search costs may have the converse effect. We show that in a signaling job market with random matching lower search costs lead to fewer employees willing to exert effort and, in a separating equilibrium, to more individuals opting to stay completely out of the job market and remain unemployed. Furthermore, we show that lower search costs not only deteriorate the market composition, but also impair efficiency by leading to more expensive signaling in a separating equilibrium.

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File URL: http://repec.kse.org.ua/pdf/KSE_dp10.pdf
File Function: Revised version, September 2008
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Paper provided by Kyiv School of Economics in its series Discussion Papers with number 10.

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Date of creation: Jul 2008
Date of revision: Sep 2008
Handle: RePEc:kse:dpaper:10
Note: Under review in American Economic Review
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  19. David Pearce & Ben Groom & Cameron Hepburn & Phoebe Koundouri, 2003. "Valuing the Future," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(2), pages 121-141, April.
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