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Search costs and efficiency: Do unemployed workers search enough?

Pieter Gautier (), Moraga-González, José L. and Ronald Wolthoff ()

European Economic Review, 2016, vol. 84, issue C, 123-139

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.

Keywords: Job search; Search cost heterogeneity; Labor market frictions; Wage dispersion; Welfare (search for similar items in EconPapers)
JEL-codes: J64 J31 J21 E24 C14 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Search Costs and Efficiency: Do Unemployed Workers Search Enough? (2015) Downloads
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