Occupational Choice and Learning during Job Search

We study efficient search behavior in a setting in an occupational choice model with two occupations, where one is more productive. The unemployed are heterogeneous in their ability in each occupation, and are imperfectly informed. In each occupation, better searching workers are more likely to be hired. Hence, workers learn about their ability from job search outcomes. Conceptually, this setting entails a bandit model of occupational choice embedded in a frictional labor market equilibrium. We characterize the search behavior that a planner would choose and compare it to equilibrium behavior. Amongst those who have high beliefs in the productive occupation, those who also have high beliefs in the other occupation should search longer in the productive occupation than they are themselves willing to, while those who have low beliefs in the other occupation. Policies to incentivize workers to search over a broader set of occupations exist in most OECD countries, and these results shed light on the types of workers that should be subjected to them and the ones that should not. Efficiency of learning during unemployment has not been yet characterized in the random search literature, and offers a new perspective on the role of government employment agencies.