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Learning by searching: spatial mismatches and imperfect information in Southern labor markets

Banerjee, Abhijit and Sequeira, Sandra (2023) Learning by searching: spatial mismatches and imperfect information in Southern labor markets. Journal of Development Economics, 164. ISSN 0304-3878

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Identification Number: 10.1016/j.jdeveco.2023.103111

Abstract

Youth unemployment remains extremely high throughout the developing world, at times coexisting with unmet demand for labour and high job turnover. We examine one possible explanation for this: spatial mismatches between jobs and job-seekers combined with high search costs can lead young job-seekers to have overly optimistic beliefs about their employment prospects. As a result, job-seekers under-search but also hold out for better jobs. Through a field experiment we find that reducing search costs through transport subsidies leads job-seekers to search more intensively and to adjust their beliefs in line with their search experience. When jobs fail to materialize immediately, job-seekers who believed that dropping CVs at prospective employers in the city centre was an effective search strategy become more impatient, they lower their reservation wage and they settle for low-paying jobs closer to home. This does not increase their likelihood of being employed, since nearby jobs are also scarce. These findings underscore both the importance and the complexity of the interaction between search costs and beliefs, and how they can lead to spatial and occupational mistargeting in the job search.

Item Type: Article
Additional Information: © 2023 The Author(s)
Divisions: International Development
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Date Deposited: 23 May 2023 13:21
Last Modified: 23 Feb 2024 08:30
URI: http://eprints.lse.ac.uk/id/eprint/119237

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