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Job Search Behaviour and Time Preferences: Testing Exponential Versus Hyperbolic Discounting

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Abstract

This article examines the effects of time preferences on job search behaviour and tests the exponential versus the hyperbolic discounting model. Theoretically, the relations between time preferences and job search intensity, reservation wages and the exit rate depend on whether exponential or hyperbolic discounting is assumed. By analysing these relations empirically we test which model of intertemporal choice better explains the results. Using the DNB Household Survey, a Dutch longitudinal survey, we capture variation in time preferences by a psychological construct that measures an individual’s future orientation. The empirical results are consistent with the hyperbolic discounting model.

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Notes

  1. In addition to the hyperbolic discounting model, several alternative models have been proposed (for a review, see: Doyle 2013).

  2. Although we refer here to \(\beta -\delta \) models (quasi-hyperbolic discounting), the theoretical results hold for (continuous) hyperbolic discounting as well (DV&P, p.542).

  3. Here we focus on the main intuition and predictions of the model; see DV&P for the formal derivations of the hypotheses.

  4. In the analysis using the NLSY, the following indicators are used: having money in a checking or saving account; contraceptive use; having a life insurance; smoking; number of hangovers; participation in vocational clubs in high school; whether the interviewer specified that the respondent’s attitude was ‘impatient and restless’.

  5. In the study of Halima and Halima (2009) these reliability indicators are 0.536 and 0.06 respectively.

  6. It is not necessary that households have a PC or internet: when a PC is absent, access is provided through a special box which enables household members to fill in the survey via the television.

  7. In each wave, respondents are asked the following question: “Are you currently looking for a(nother) job?” Potential answers are: (1)“Yes, I am seriously searching for a(nother) job”; (2)“Yes, I am considering searching for a(nother) job”; (3)“No, I just found another job”; (4)“No, I am not looking”. When their answer is (1) or (2) they are included in the analyses.

  8. The original CFC Scale uses a 5-point scale and consists of twelve rather than eleven statements. However, this twelfth item is missing in the waves 1996–2003 and is therefore not included in the analysis.

  9. Most studies in intertemporal choice measure discounting in an experimental setting and use monetary tasks, where subjects have the option to choose between smaller, more immediate rewards and larger, but more delayed rewards.

  10. The Cronbach reliability measure and the average interitem correlation are considerably larger than the ones obtained in the study of DV&P and of Halima and Halima (2009). This suggests that the FUTURE items are substantially more precise.

  11. To compute the five year average for the years 1998–2005, next to the patience variable of year t, two lags and two leads are used. If one of the five patience variables was missing, a four year window is used instead. This procedure is repeated, using a three year window, two year window and finally the patience level of year t. For the first and last years a four year window is used: 1996 (three leads), 1997 (one lag and two leads), 2006 (two lags and one lead), 2007 (two lags and the 2009 wave), 2008 (two lags, two leads), 2009 (one lead and two lags—the 2006 and 2007 waves) and 2010 (two lags—the 2007 and 2009 waves).

  12. A respondent may be unemployed in wave x and not complete all answers on the FUTURE items. However, this respondent may be employed in another wave and provide answers the FUTURE items in wave y. In that case the observation is missing for the patience variable but available for the patience sum variable.

  13. For the 2008 wave, the average between the 2007 and 2009 patience variable is used. If the variable was missing in either 2007 or 2009, a lead or lag was imputed instead.

  14. To generate these variables information is obtained from the questions “How many times have you applied for a job during the last two months” and “How have you searched for a job during the last two months?” (up to eight different methods).

  15. Since the number of applications and channels can be considered as count data, the models using these dependent variables are also estimated with a negative binomial regression. This leads to similar results.

  16. Only the results using patience sum are presented here: for the original patience variable, the number of observations is rather low and the results are inconsistent.

  17. The marginal effects turn only just insignificant at higher levels of patience.

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Correspondence to Thomas van Huizen.

Additional information

The authors would like to thank Rob Alessie, participants of the SABE San Diego Conference and the XXV Annual ESPE Conference and two anonymous referees for helpful comments and suggestions. This study is part of the research programme ‘Life course, social security and the labour market’ at Utrecht University. Financial support from Stichting Instituut Gak is gratefully acknowledged.

Appendices

Appendix A: FUTURE items

See Appendix Tables 10 and 11.

Table 10 Correlation matrix
Table 11 Factor analysis: All FUTURE items

Appendix B: Controls

See Appendix Table 12.

Table 12 Controls: descriptives

Appendix C: Marginal Effects

See Appendix Table 13.

Table 13 Marginal effects of patience sum: search intensity and transitions

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van Huizen, T., Plantenga, J. Job Search Behaviour and Time Preferences: Testing Exponential Versus Hyperbolic Discounting. De Economist 162, 223–245 (2014). https://doi.org/10.1007/s10645-014-9231-y

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