Job Search Costs and Incentives

Andriy Zapechelnyuk and Ro'i Zultan

No 693, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: The costs of searching for a job vacancy are typically associated with friction that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is noncontractible, job search costs play a positive role, whose effect may outweigh the negative implications. As workers are provided incentives to exert effort by the threat of losing their job and having to search for a new vacancy, a reduction in job search costs leads to fewer employees willing to exert effort. The overall lower productivity will make more individuals and firms opting to stay out of the labor market, resulting in lower employment and decreased welfare. Eventually, a reduction of jobs search costs below a certain level results in collapse of the labor market.

Keywords: Job search; Moral hazard; Labor market; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: D83 J64 J65 (search for similar items in EconPapers)
Date: 2012-04-01
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Related works:
Journal Article: Job search costs and incentives (2020)
Working Paper: JOB SEARCH COSTS AND INCENTIVES (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:693

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