Job search costs and incentives

Andriy Zapechelnyuk, Ro'i Zultan

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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.
    Original languageEnglish
    JournalEconomic Theory Bulletin
    VolumeFirst Online
    Early online date10 Sept 2019
    Publication statusE-pub ahead of print - 10 Sept 2019


    • Job search
    • Moral hazard
    • Labor market
    • Unemployment insurance


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