Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97341
Authors: 
Zapechelnyuk, Andriy
Zultan, Ro'i
Year of Publication: 
2012
Series/Report no.: 
Working Paper, School of Economics and Finance, Queen Mary, University of London 693
Abstract: 
The costs of searching for a job vacancy are typically associated with friction that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is noncontractible, job search costs play a positive role, whose effect may outweigh the negative implications. As workers are provided incentives to exert effort by the threat of losing their job and having to search for a new vacancy, a reduction in job search costs leads to fewer employees willing to exert effort. The overall lower productivity will make more individuals and firms opting to stay out of the labor market, resulting in lower employment and decreased welfare. Eventually, a reduction of jobs search costs below a certain level results in collapse of the labor market.
Subjects: 
Job search
Moral hazard
Labor market
Unemployment insurance
JEL: 
D83
J64
J65
Document Type: 
Working Paper

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