Job search costs and incentives

Andriy Zapechelnyuk and Ro'i Zultan

Economic Theory Bulletin, 2020, vol. 8, issue 2, No 2, 202 pages

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: D82 J64 J65 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: JOB SEARCH COSTS AND INCENTIVES (2013)
Working Paper: Job Search Costs and Incentives (2012)
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DOI: 10.1007/s40505-019-00176-2

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