Structural Estimation of Search Intensity: Do non-employed workers search hard enough?

Pieter Gautier, Jose Moraga-Gonzalez and Ronald Wolthoff

No 695, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: The speed at which unemployed workers find jobs depends on their search intensity. Most of the literature defines search intensity as a scalar that influences the arrival rate of job offers. In this paper we treat it explicitly as the number of job applications that workers send out in a given period. This number of applications and the wage distribution are simultaneously determined. We structurally estimate the search cost distribution, the implied matching probabilities, the productivity of a match, and the flow value of non-labor market time within a segment. These estimates are then used to derive the socially optimal distribution of search intensities. We find that, from a social point of view, too little workers participate and that the unemployed workers search too much. The low participation rate reflects a standard hold-up problem and the excess number of applications per worker is due to rent seeking behavior. Most welfare gains can be realized by a combination of opening more vacancies and increasing participation. If they are set optimally, output could be about 15% higher. A positive modest binding minimum wage or UI benefits conditional on applying at least once, increases participation, decreases rent seeking and decreases entry. The total welfare effects of those instruments are positive as long as they are set not too high.

Date: 2007
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