Job search costs and incentives
Abstract
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.
Citation
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
Publication
Economic Theory Bulletin
Status
Peer reviewed
ISSN
2196-1093Type
Journal article
Collections
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