Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias
American Economic Review
vol. 111,
no. 1, January 2021
(pp. 324-63)
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.Citation
Mueller, Andreas I., Johannes Spinnewijn, and Giorgio Topa. 2021. "Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias." American Economic Review, 111 (1): 324-63. DOI: 10.1257/aer.20190808Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J22 Time Allocation and Labor Supply
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings