Search by Firms and Labor Market Policies

Search by Firms and Labor Market Policies

Title:

Search by Firms and Labor Market Policies

Number:

16/07

Author(s):

Gönül Şengül

Language:

English

Date:

March 2016

Abstract:

This paper develops a model of search by employers in which search to fill a vacancy affects firms' probability of hiring, duration of the employment relationship, cost of a vacancy and the expected productivity of the job. I employ a model with uncertainty about the quality of a match: it could be of good or bad quality. Firms conduct interviews where they learn the probability of the match being of good quality and select the worker with the highest probability. Hence, more interviews increase the chance of getting a good quality match thereby reducing separations. I find that firms mostly adjust the number of interviews they conduct when labor market policies are introduced to the model. Counterfactual exercises where firms cannot adjust the number of interviews reveal that selection channel mostly mitigates the effect of policy on unemployment rate.

Keywords:

Labor market search, Unemployment, Search by employer, Labor market policies

JEL Codes:

E24; J64; J63

Search by Firms and Labor Market Policies
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