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Re-employment Expectations and the Eye of Providence

Sonja C. Kassenboehmer and Sonja G. Schatz
Additional contact information
Sonja C. Kassenboehmer: Centre for Health Economics, Monash University; and Institute for the Study of Labor (IZA)
Sonja G. Schatz: Mercator School of Management, University of Duisburg-Essen

Authors registered in the RePEc Author Service: Sonja Cornelia de New

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: Using a nationally representative panel dataset, this study investigates the extent and impact of systematic misconceptions of the currently unemployed concerning their statistical reemployment probability, affecting their labor market behavior in a sub-optimal way. Specifically, people with unemployment experience of 3 to 5 years significantly underestimate their objective re-employment probabilities as determined by the econometrician’s all-seeing ‘Eye of Providence’. Simply having information concerning the individuals’ previous unemployment experience is sufficient to make more accurate predictions than the individuals themselves. People who underestimate their re-employment probability are less likely to search actively for a job and indeed more likely to exit the labor force. If re-employed, they are more likely to accept lower wages, work fewer hours, work part-time and experience lower levels of job satisfaction. This information can be used by employment agency case workers to counsel clients better and prevent client adverse behavior and outcomes.

Keywords: Job insecurity; re-employment expectations; prediction errors (search for similar items in EconPapers)
JEL-codes: J64 J01 D84 (search for similar items in EconPapers)
Pages: 52pp
Date: 2014-07
New Economics Papers: this item is included in nep-hap and nep-lab
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