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Learning and Job Search Dynamics during the Great Recession

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  • Tristan Potter

    (School of Economics Drexel University)

Abstract

I document two new facts about job search during the Great Recession: (i) Search effort permanently increases after individuals receive (and reject) job offers, and (ii) search effort decreases with cumulative failed search. Motivated by these facts, I introduce a model in which Bayesian job seekers learn about the arrival rate of offers through their idiosyncratic search experiences. The model yields a tractable characterization of search effort in terms of an individual's past job offers and past search effort. I use the model to decompose the effect of learning on job search into static and dynamic components: Failing to find work exerts a negative influence on search by reducing the perceived opportunity cost of leisure in the current period, but also stimulates search by reducing the option value of unemployment in future periods. Because these effects vary endogenously over the spell, the model delivers rich – and potentially nonmonotonic – dynamics in search behavior. I estimate the model and demonstrate that learning accounts for the empirical profiles of search time, offer arrivals, and hazard rates over the unemployment spell.

Suggested Citation

  • Tristan Potter, 2017. "Learning and Job Search Dynamics during the Great Recession," School of Economics Working Paper Series 2017-6, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2017_006
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    Cited by:

    1. Bradley, Jake & Mann, Lukas, 2024. "Learning about labor markets," Journal of Monetary Economics, Elsevier, vol. 148(C).
    2. Stefano Della & Jörg Heining & Johannes F Schmieder & Simon Trenkle, 2022. "Evidence on Job Search Models from a Survey of Unemployed Workers in Germany [Reference-Dependent Preferences: Evidence from Marathon Runners]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(2), pages 1181-1232.
    3. John J. Conlon & Laura Pilossoph & Matthew Wiswall & Basit Zafar, 2018. "Labor Market Search With Imperfect Information and Learning," NBER Working Papers 24988, National Bureau of Economic Research, Inc.
    4. Ioannis Kospentaris, 2021. "Unobserved Heterogeneity and Skill Loss in a Structural Model of Duration Dependence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 280-303, January.
    5. Jorge González Chapela, 2021. "Job Searching and the Weather: Evidence from Time-Use Data," Journal of Labor Research, Springer, vol. 42(1), pages 29-55, March.
    6. Adams-Prassl, Abi & Boneva, Teodora & Golin, Marta & Rauh, Christopher, 2023. "Perceived returns to job search," Labour Economics, Elsevier, vol. 80(C).
    7. Jake Bradley & Lukas Mann, 2023. "Learning about labour markets," Discussion Papers 2023/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

    More about this item

    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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