A Dynamic Model of Job Search Behavior over the Life Cycle with Empirical Applications

This paper presents a dynamic model of job search behavior over the Life Cycle. Individuals endogenously make consumption-saving, labor-leisure, and search decisions under capital, lifetime and wage uncertainty. We extend recent research on these types of stochastic dynamic programming models to account for the fact that individuals use some of their available time to search for jobs. Searching is costly in terms of leisure and in terms of monetary resources, but it is also productive having a positive effect on the wage individuals expect to receive in subsequent periods. The paper also extends the seminal work of Seater (1977) to account for uncertainty and public pensions, and introduces a framework that allows for policy experimentation and eventually can be used to estimate the underlying structural parameters of the model. Furthermore, we connect this model to the human capital investment decision over the life cycle. We also show that some features of the dynamic model can be reconciled with empirical data from the Health and Retirement Survey on search behavior among older workers. The empirical analysis of search behavior at the end of the life cycle represents one of the first efforts to characterize job search as an important issue to consider for older individuals. Also, we explore through binary choice models, the factors that influence the search decision among employed and non-employed older individuals.