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Learning by searching: Spatial mismatches and imperfect information in Southern labor markets

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  • Banerjee, Abhijit
  • Sequeira, Sandra

Abstract

Youth unemployment remains extremely high throughout the developing world, at times coexisting with unmet demand for labour and high job turnover. We examine one possible explanation for this: spatial mismatches between jobs and job-seekers combined with high search costs can lead young job-seekers to have overly optimistic beliefs about their employment prospects. As a result, job-seekers under-search but also hold out for better jobs. Through a field experiment we find that reducing search costs through transport subsidies leads job-seekers to search more intensively and to adjust their beliefs in line with their search experience. When jobs fail to materialize immediately, job-seekers who believed that dropping CVs at prospective employers in the city centre was an effective search strategy become more impatient, they lower their reservation wage and they settle for low-paying jobs closer to home. This does not increase their likelihood of being employed, since nearby jobs are also scarce. These findings underscore both the importance and the complexity of the interaction between search costs and beliefs, and how they can lead to spatial and occupational mistargeting in the job search.

Suggested Citation

  • Banerjee, Abhijit & Sequeira, Sandra, 2023. "Learning by searching: Spatial mismatches and imperfect information in Southern labor markets," Journal of Development Economics, Elsevier, vol. 164(C).
  • Handle: RePEc:eee:deveco:v:164:y:2023:i:c:s0304387823000664
    DOI: 10.1016/j.jdeveco.2023.103111
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    Cited by:

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    2. Lukas Hensel & Kate Orkin & Andrea Kiss & Robert Garlick, 2023. "Jobseekers' beliefs about comparative advantage and (mis)directed search," CSAE Working Paper Series 2023-11, Centre for the Study of African Economies, University of Oxford.
    3. Afridi, Farzana & Dhillon, Amrita & Roy, Sanchari & Sangwan, Nikita, 2023. "Social Networks, Gender Norms and Labor Supply: Experimental Evidence Using a Job Search Platform," CAGE Online Working Paper Series 677, Competitive Advantage in the Global Economy (CAGE).
    4. Kelley, Erin M. & Ksoll, Christopher & Magruder, Jeremy, 2024. "How do digital platforms affect employment and job search? Evidence from India," Journal of Development Economics, Elsevier, vol. 166(C).
    5. Frohnweiler, Sarah & Adongo, Charles A. & Beber, Bernd & Lakemann, Tabea & Priebe, Jan & Lay, Jann, 2024. "Effects of skills training on employment and livelihood outcomes: A randomized controlled trial with young women in Ghana," Ruhr Economic Papers 1095, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    Labour markets; Transport costs; Search costs; Transport subsidies;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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