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Structural adjustment and endogenous worker recall probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arise when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no effect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government may face a Samaritan's Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) "one too many"-result may not hold if there is uncertainty concerning when the game ends.

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Paper provided by Department of Economics, University of Bergen in its series Working paper Series with number 0206.

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Length: pages
Date of creation: 14 Mar 2002
Date of revision:
Handle: RePEc:uib:bereco:0206
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  1. Paul Klemperer & Jeremy Bulow, 1997. "The Generalized War of Attrition," Economics Series Working Papers 1998-W01, University of Oxford, Department of Economics.
  2. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  3. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
  4. Clark, Derek J & Riis, Christian, 1996. " A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
  5. Pissarides, Christopher A, 1982. "Job Search and the Duration of Layoff Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 595-612, November.
  6. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November.
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