The Amplification of Unemployment Fluctuations through Self-Selection

Robert Hall ()

No 11186, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Unemployment arises from frictions in the matching of job-seekers and employers. The level of resources that employers devote to evaluating applicants for jobs is a key factor in the magnitude of the frictions. Unemployment will be low if employers can review applicants cheaply. The cost of evaluation per hire depends on the fraction of applicants who are qualified for the job. Applicants may be better informed about their qualifications than are employers. If incentives induce self-selection by job-seekers, so that they apply mainly for jobs where they are qualified, friction and thus unemployment will be low. Self-selection is strongest in markets where unemployment is low and jobs are easy to find. Because of this positive feedback, the equilibrium in a market with self-selection is fragile -- unemployment is sensitive to its determinants. Self-selection provides a mechanism for amplification of small changes in the determinants of unemployment.

JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2005-03
New Economics Papers: this item is included in nep-mac
Note: EFG LS
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Citations: View citations in EconPapers (6)

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