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Job Market Signaling and Job Search

Author

Listed:
  • Andriy Zapechelnyuk

    (Kyiv School of Economics)

  • Ro'i Zultan

    (Hebrew University of Jerusalem)

Abstract

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.

Suggested Citation

  • Andriy Zapechelnyuk & Ro'i Zultan, 2008. "Job Market Signaling and Job Search," Discussion Papers 10, Kyiv School of Economics, revised Sep 2008.
  • Handle: RePEc:kse:dpaper:10
    Note: Under review in American Economic Review
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Signaling; job market; job search; separating equilibrium; unemployment; moral hazard;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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