An Equilibrium Theory of Learning, Search and Wages

Francisco Gonzalez () and Shouyong Shi

Working Papers from University of Toronto, Department of Economics

Abstract: We examine the labor market effects of incomplete information about the workers' own job-finding process. Search outcomes convey valuable information, and learning from search generates endogenous heterogeneity in workers' beliefs about their job-finding probability. We characterize this process and analyze its interactions with job creation and wage determination. Our theory sheds new light on how unemployment can affect workers' labor market outcomes and wage determination, providing a rational explanation for discouragement as the consequence of negative search outcomes. In particular, longer unemployment durations are likely to be followed by lower re-employment wages because a worker's beliefs about his job-finding process deteriorate with unemployment duration. Moreover, our analysis provides a set of useful results on dynamic programming with optimal learning.

Keywords: Learning; Wages; Unemployment; Directed search; Monotone comparative statics (search for similar items in EconPapers)
JEL-codes: D83 E24 J64 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-12-08
New Economics Papers: this item is included in nep-cta, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: An Equilibrium Theory of Learning, Search, and Wages (2010)
Working Paper: An Equilibrium Theory of Learning, Search and Wages (2009)
Working Paper: An Equilibrium Theory of Learning, Search and Wages (2008)
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