Learning by searching: spatial mismatches and imperfect information in Southern labor markets

Abhijit Banerjee and Sandra Sequeira

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Youth unemployment remains extremely high throughout the developing world, at times coexisting with unmet demand for labour and high job turnover. We examine one possible explanation for this: spatial mismatches between jobs and job-seekers combined with high search costs can lead young job-seekers to have overly optimistic beliefs about their employment prospects. As a result, job-seekers under-search but also hold out for better jobs. Through a field experiment we find that reducing search costs through transport subsidies leads job-seekers to search more intensively and to adjust their beliefs in line with their search experience. When jobs fail to materialize immediately, job-seekers who believed that dropping CVs at prospective employers in the city centre was an effective search strategy become more impatient, they lower their reservation wage and they settle for low-paying jobs closer to home. This does not increase their likelihood of being employed, since nearby jobs are also scarce. These findings underscore both the importance and the complexity of the interaction between search costs and beliefs, and how they can lead to spatial and occupational mistargeting in the job search.

Keywords: labor markets; transport costs; search costs; transport subsidies (search for similar items in EconPapers)
JEL-codes: J01 J1 R14 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2023-09-01
New Economics Papers: this item is included in nep-exp, nep-mfd and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Journal of Development Economics, 1, September, 2023, 164. ISSN: 0304-3878

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Journal Article: Learning by searching: Spatial mismatches and imperfect information in Southern labor markets (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119237

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