Search Costs and Efficiency: Do Unemployed Workers Search Enough?

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Many labor market policies affect the marginal benefits and costs of job search. The impact and desirability of such policies depend on the distribution of search costs. In this paper, we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the Dutch labor market. In our model, the wage distribution, job search intensities, and firm entry are simultaneously determined in market equilibrium. Given the distribution of search intensities (which we directly observe), we calibrate the search cost distribution and the flow value of non-market time; these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities. From a social point of view, some unemployed workers search too little due to a hold-up problem, while other unemployed workers search too much due to coordination frictions and rent-seeking behavior. Our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare-improving.
Original languageEnglish
Pages (from-to)123-139
JournalEuropean Economic Review
Volume84
Issue numberMay
DOIs
Publication statusPublished - 2016

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Search costs
Workers
Job search
Search intensity
Firm entry
Hold-up problem
Unemployment benefits
Costs and benefits
Friction
Wage distribution
Labour market
Sanctions
Market equilibrium
Rent-seeking
Labour market policy

Cite this

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title = "Search Costs and Efficiency: Do Unemployed Workers Search Enough?",
abstract = "Many labor market policies affect the marginal benefits and costs of job search. The impact and desirability of such policies depend on the distribution of search costs. In this paper, we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the Dutch labor market. In our model, the wage distribution, job search intensities, and firm entry are simultaneously determined in market equilibrium. Given the distribution of search intensities (which we directly observe), we calibrate the search cost distribution and the flow value of non-market time; these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities. From a social point of view, some unemployed workers search too little due to a hold-up problem, while other unemployed workers search too much due to coordination frictions and rent-seeking behavior. Our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare-improving.",
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Search Costs and Efficiency: Do Unemployed Workers Search Enough? / Gautier, P.A.; Moraga Gonzalez, J.L.; Wolthoff, R.P.

In: European Economic Review, Vol. 84, No. May, 2016, p. 123-139.

Research output: Contribution to JournalArticleAcademicpeer-review

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