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Job search costs and incentives

Research output: Contribution to journalArticle

Author(s)

Andriy Zapechelnyuk, Ro'i Zultan

School/Research organisations

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.
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Details

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

    Research areas

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

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