Advertisement

Job search costs and incentives

  • Andriy Zapechelnyuk
  • Ro’i ZultanEmail author
Research Article
  • 45 Downloads

Abstract

We demonstrate that policies aimed at reducing frictional unemployment may lead to the opposite results. In a labor market with long-term wage contracts and moral hazard, any such policy reduces employees’ opportunity costs of staying on a job. As employees are less worried about losing their job, a smaller share of employees is willing to exert effort, leading to a lower average productivity. Consequently, firms create fewer vacancies, resulting in lower employment and decreased welfare.

Keywords

Job search Moral hazard Labor market Unemployment insurance 

JEL Classification

D82 J64 J65 

Notes

Acknowledgements

This paper was conceived during the activities of the Game Theory and Evolution group organized by Sergiu Hart and Avi Shmida and hosted by the Institute for Advanced Studies and the Center for Rationality at the Hebrew University of Jerusalem. We are thankful to the group members, in particular to its organizers and the host institutions. We also thank Tomer Blumkin, Leif Danziger, Tymofiy Mylovanov, and Eyal Winter for valuable comments.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

References

  1. Acemoglu, D., Shimer, R.: Productivity gains from unemployment insurance. Eur. Econ. Rev. 44(7), 1195–1224 (2000)CrossRefGoogle Scholar
  2. Baily, M.N.: Some aspects of optimal unemployment insurance. J. Public Econ. 10(3), 379–402 (1978)CrossRefGoogle Scholar
  3. Blanchard, O.: The economic future of Europe. J. Econ. Perspect. 18(4), 3–26 (2004)CrossRefGoogle Scholar
  4. Chetty, R.: Moral hazard versus liquidity and optimal unemployment insurance. J. Polit. Econ. 116(2), 173–234 (2008)CrossRefGoogle Scholar
  5. Demougin, D., Helm, C.: Job matching when employment contracts suffer from moral hazard. Eur. Econ. Rev. 55(7), 964–979 (2011)CrossRefGoogle Scholar
  6. Diamond, P.A.: Mobility costs, frictional unemployment, and efficiency. J. Polit. Econ. 89, 798–812 (1981)CrossRefGoogle Scholar
  7. Diamond, P.A.: Wage determination and efficiency in search equilibrium. Rev. Econ. Stud. 49, 217–227 (1982)CrossRefGoogle Scholar
  8. Farber, H.S.: Job loss and the decline in job security in the united states. In: Abraham, K., Spletzer, J.R., Harper, M. (eds.) Labor in the New Economy, pp. 223–262. University of Chicago Press, Chicago (2010)CrossRefGoogle Scholar
  9. Fredriksson, P., Holmlund, B.: Improving incentives in unemployment insurance: a review of recent research. J. Econ. Surv. 20(3), 357–386 (2006)CrossRefGoogle Scholar
  10. Garrison, L.R., Cummings, R.: Global impact of tax considerations for displaced workers. Int. Bus. Econ. Res. J. (IBER) 9(9), 87–98 (2010)CrossRefGoogle Scholar
  11. Gregg, P., Wadsworth, J.: Job tenure in Britain, 1975–2000. Is a job for life or just for Christmas? Oxf. B Econ. Stat. 64, 111–134 (2002)CrossRefGoogle Scholar
  12. Grubb, D.: Eligibility criteria for unemployment benefits. In: Labour Market Policies and the Public Employment Service, OECD, pp. 187–216 (2001)Google Scholar
  13. Guerrieri, V.: Inefficient unemployment dynamics under asymmetric information. J. Polit. Econ. 116(4), 667–708 (2008)CrossRefGoogle Scholar
  14. Holmlund, B.: Unemploymeny insurance in theory and practice. Scand. J. Econ. 100(1), 113–141 (1998)CrossRefGoogle Scholar
  15. Hopenhayn, H.A., Nicolini, J.P.: Optimal unemployment insurance. J. Polit. Econ. 105(2), 412–438 (1997)CrossRefGoogle Scholar
  16. Macaulay, C.: Job mobility and job tenure in the UK. Labour Market Trends 111(11), 541–550 (2003)Google Scholar
  17. Manning, A.: You can’t always get what you want: the impact of the UK Jobseeker’s Allowance. Labour Econ. 16, 239–250 (2009)CrossRefGoogle Scholar
  18. Marimon, R., Zilibotti, F.: Unemployment vs. mismatch of talents: reconsidering unemployment benefits. Econ. J. 109(455), 266–291 (1999)CrossRefGoogle Scholar
  19. Matouschek, N., Ramezzana, P., Robert-Nicoud, F.: Labor market reforms, job instability, and the flexibility of the employment relationship. Eur. Econ. Rev. 53(1), 19–36 (2009)CrossRefGoogle Scholar
  20. Moen, E.R., Rosén, A.: Incentives in competitive search equilibrium. Rev. Econ. Stud. 78, 733–761 (2011)CrossRefGoogle Scholar
  21. Mortensen, D.T.: The matching process as a noncooperative/bargaining game. In: McCall, J.J. (ed.) The Economics of Information and Uncertainty. University of Chicago Press, Chicago (1982)Google Scholar
  22. Petrongolo, B.: The long-term effects of job search requirements: evidence from the UK JSA reform. J. Public Econ. 93(11), 1234–1253 (2009)CrossRefGoogle Scholar
  23. Pissarides, C.A.: Equilibrium Unemploymeny Theory. The MIT Press, Cambridge (2000)Google Scholar
  24. Pries, M., Rogerson, R.: Search frictions and labor market participation. Eur. Econ. Rev. 53(5), 568–587 (2009)CrossRefGoogle Scholar
  25. Rayner, E., Shah, S., White, R., Dawes, L., Tinsley, K.: Evaluating Jobseeker’s Allowance: a summary of the research findings. Department of Social Security (UK), Research Report 116 (2000)Google Scholar
  26. Shapiro, C., Stiglitz, J.E.: Equilibrium unemployment as a worker discipline device. Am. Econ. Rev. 74(3), 433–444 (1984)Google Scholar
  27. Shavell, S., Weiss, L.: The optimal payment of unemployment insurance benefits over time. J. Polit. Econ. 87, 1347–1362 (1979)CrossRefGoogle Scholar
  28. Tsuyuhara, K.: Dynamic contracts with worker mobility via directed on-the-job search. Int. Econ. Rev. 57(4), 1405–1424 (2016)CrossRefGoogle Scholar

Copyright information

© Society for the Advancement of Economic Theory 2019

Authors and Affiliations

  1. 1.School of Economics and FinanceUniversity of St AndrewsSt AndrewsUK
  2. 2.Department of EconomicsBen-Gurion University of the NegevBeer-ShevaIsrael

Personalised recommendations