1. Copyright © 2009 Pearson Education, Inc. 5- 1 Topic 5-2. (Ch. 14) Job Search

2. Copyright © 2009 Pearson Education, Inc. 5- 2 Channels of Job Search  Formal Search vs. Informal Search Formal search (public agency, private agency, placed ads, etc.) Informal search (friends/relatives, gate applications)  Extensive Search vs. Intensive Search  Pros and cons of using public agency Pros: no fee, largest pool of information Cons: The law of unintended consequences: two experiments  Pros of news ads: reach wide audience at relatively low cost.

3. Copyright © 2009 Pearson Education, Inc. 5- 3 Search by employed workers  1/3 of adult men and 1/5 of adult women searching  Cost of search is small if he/she is already employed cf) cost of search: direct cost, opportunity cost Public policy affect opportunity cost as well (unemployment insurance)  Give good signal: can remove the danger of appearing to need a job  But it might be harder to make contacts

4. Copyright © 2009 Pearson Education, Inc. 5- 4 Logic of job search  Cost-Benefit Analysis: MB>MC  Marginal Cost (MC) of search to rise and Marginal Benefit (MB) of search to fall a. People use the least costly alternative first (MC) b. more likely they have exhausted unemployment benefits and savings (MC) c. people search most promising firm first (MB) d. remaining work life decreases (MB)  Depends on labor market

5. Copyright © 2009 Pearson Education, Inc. 5- 5 Issues about job search model  What jobs available? (what is the distribution of wage among available job?)  Does the worker know the distribution of available wages when he starts searching or must he learn it as he goes along?  What happens to a job offer once a worker receive it? Is the offer subject to “recall”?  Search while employed or not?

6. Copyright © 2009 Pearson Education, Inc. 5- 6 Simple job search model  Assumption a. Worker knows exactly what jobs are available b. Once a job is discovered, it is always available (subject to recall) c. No budget constraint for job search d. Can make only one job contact per period

7. Copyright © 2009 Pearson Education, Inc. 5- 7 Figure 14.3: Choice of Reservation Wage in a Model of Job Search

8. Copyright © 2009 Pearson Education, Inc. 5- 8 Simple job search model (example) WageFraction of jobs Prob. getting at least that wage Search time $55% 100%1 month $620%95% 2 $720%75% 2 $835%55% 2 $915%20% 5 $105% 20

9. Copyright © 2009 Pearson Education, Inc. 5- 9 (Working hours = 1200, Cost= $1000/month) WageSearchCostBenefitMCMB $51mont h 1,0006,0001,0006,000 $622,0007,2001,0001,200 $722,0008,4001,0002,400 $822,0009,6001,0003,600 $955,00010,6001,0001,000/3 $102020,00012,0001,0001,400/15

10. Copyright © 2009 Pearson Education, Inc. 5- 10 Complex model of job search  MB>MC, but different assumptions (much more uncertainties)  Learning by doing  More than one contact (decision making)  Not subject to recall  Matching process: employees set “acceptance wage”and employers set “minimum hiring standard”  Mutual ignorance creates wide range of wage variation in the same occupation