Job Search, Job Findings and the Role of Unemployment Insurance History

Standard search theory suggests that (1) job search intensity increases with the relative gain from searching, and that (2) job search intensity increases the job finding probability. Firstly, this paper presents new empirical findings that are at odds with these theoretical predictions when workers are categorised by their unemployment insurance (UI) history. Unemployed workers who either are currently receiving or used to receive UI search harder than those who never take up UI during their unemployment spells. Moreover, despite their higher search intensity, those with a UI history have a lower job finding probability. Subsequently, I incorporate unproductive and inefficient job search, consistent with these empirical findings, into an otherwise standard stochastic equilibrium search-and-matching model with endogenous search intensity. Three key results emerge from these job search imperfections: (1) Aggregate search intensity becomes acyclical leading to an underestimated matching efficiency; (2) the general equilibrium effects of UI extensions and the labour market fluctuations are dampened; and (3) unemployment and its duration are more persistent.