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Job Search Costs and Incentives

Author

Listed:
  • Andriy Zapechelnyuk

    (Queen Mary, University of London)

  • Ro'i Zultan

    (Ben-Gurion University of the Negev)

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.

Suggested Citation

  • Andriy Zapechelnyuk & Ro'i Zultan, 2012. "Job Search Costs and Incentives," Working Papers 693, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:693
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. When job search frictions are good
      by Economic Logician in Economic Logic on 2013-12-18 21:50:00

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    More about this item

    Keywords

    Job search; Moral hazard; Labor market; Unemployment insurance;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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