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Job Market Signaling and Job Search

Andriy Zapechelnyuk and Ro'i Zultan

No 10, Discussion Papers from Kyiv School of Economics

Abstract: The high cost of searching for employers borne by prospective employees increases friction in the labor market and inhibits formation of efficient employer-employee relationships. It is conventionally agreed that mechanisms that reduce the search costs (e.g., internet portals for job search) lower unemployment and improve overall welfare. We demonstrate that a reduction of the search costs may have the converse effect. We show that in a signaling job market with random matching lower search costs lead to fewer employees willing to exert effort and, in a separating equilibrium, to more individuals opting to stay completely out of the job market and remain unemployed. Furthermore, we show that lower search costs not only deteriorate the market composition, but also impair efficiency by leading to more expensive signaling in a separating equilibrium.

Keywords: Signaling; job market; job search; separating equilibrium; unemployment; moral hazard (search for similar items in EconPapers)
JEL-codes: C72 C73 D82 J64 (search for similar items in EconPapers)
Date: 2008-07, Revised 2008-09
New Economics Papers: this item is included in nep-cta, nep-dge and nep-lab
Note: Under review in American Economic Review
References: View references in EconPapers View complete reference list from CitEc

Downloads: (external link) Revised version, September 2008 (application/pdf)

Related works:
Working Paper: Job Market Signalling and Job Search (2008) Downloads
Working Paper: Job Market Signaling and Job Search (2008) Downloads
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