Job seekers’ perceptions and employment prospects: heterogeneity, duration dependence, and bias

Mueller, Andreas I., Spinnewijn, Johannes ORCID: 0000-0002-7963-5847 and Topa, Giorgio (2021) Job seekers’ perceptions and employment prospects: heterogeneity, duration dependence, and bias. American Economic Review, 111 (1). 324 - 363. ISSN 0002-8282

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Abstract

This paper uses job seekers’elicited beliefs about job finding to disentangle the sources of the decline in job-finding rates by duration of unemployment. We document that beliefs have strong predictive power for job finding, but are not revised downward when remaining unemployed and are subject to optimistic bias, especially for the long-term unemployed. Leveraging the predictive power of beliefs, we find substantial heterogeneity in job finding with the resulting dynamic selection explaining most of the observed negative duration dependence in job finding. Moreover, job seekers’beliefs underreact to heterogeneity in job finding, distorting search behavior and increasing long-term unemployment.

Item Type:	Article
Official URL:	https://www.aeaweb.org/journals/aer
Additional Information:	© 2021 American Economic Association
Divisions:	Economics
Subjects:	H Social Sciences > HD Industries. Land use. Labor
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation) J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J65 - Unemployment Insurance; Severance Pay; Plant Closings
Date Deposited:	15 Jan 2021 14:12
Last Modified:	19 Feb 2025 00:21
URI:	http://eprints.lse.ac.uk/id/eprint/108447

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