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A Directed Search Model of Ranking by Unemployment Duration

Author

Listed:
  • Edgar Preugschat

    (Norwegian School of Management)

  • Javier Fernandez-Blanco

    (University Carlos III of Madrid)

Abstract

Empirical evidence shows that longer spells of unemployment are associated with fewer job offer arrivals, lower job-finding rates and wage offers. Further, workers with longer unemployment duration are discriminated against. This paper sets up a directed search model based on informational stigma to replicate these facts. Firms imperfectly test for the applicantsâ productivity. Unemployment duration is informative about the applicantsâ expected productivity: if skilled workers perform better at the recruiting processes, then longer unemployment durations signal lower expected productivity. As a result, candidates with shorter unemployment spells are ranked ahead. The intertemporal link leads to constrained inefficiency and makes information sensitive to business cycle fluctuations. Consistent with the empirical evidence from CPS, simulated wages decline faster during economic boom periods.

Suggested Citation

  • Edgar Preugschat & Javier Fernandez-Blanco, 2011. "A Directed Search Model of Ranking by Unemployment Duration," 2011 Meeting Papers 441, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:441
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    References listed on IDEAS

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