Job search costs and incentives
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We demonstrate that policies aimed at reducing frictional unemployment may lead to the opposite results. In a labor market with long-term wage contracts and moral hazard, any such policy reduces employees’ opportunity costs of staying on a job. As employees are less worried about losing their job, a smaller share of employees is willing to exert effort, leading to a lower average productivity. Consequently, firms create fewer vacancies, resulting in lower employment and decreased welfare.
Zapechelnyuk , A & Zultan , R 2019 , ' Job search costs and incentives ' , Economic Theory Bulletin , vol. First Online . https://doi.org/10.1007/s40505-019-00176-2
Economic Theory Bulletin
Copyright © 2019 Society for the Advancement of Economic Theory. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1007/s40505-019-00176-2
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