Job Hunting: A Costly Quest

Abstract

Unemployed individuals face pecuniary search costs when looking for a job. A the same time, it is well documented that unemployed face binding liquidity constraints. We develop a quantitative incomplete markets search-and-matching model featuring such search costs and employ it as a policy laboratory. Specifically, we calibrate the model to be consistent with estimates from an administrative data of unemployed search audits and then evaluate policies which are aimed at transferring resources to the unemployed and alleviating the financial constraints associated with search. We generally find that for small transfers the policymaker faces a trade-off between an uptick in the measure of unemployed actually searching and a fall in the unemployment exit-rate conditional on searching. For larger reforms, an active search margin magnifies various of the reforms disincentives, leading to a bigger drop in the employment rate than previously thought. (work join with Domenico Ferraro (ASU), Francesca Molinari (Cornell), Cristobal Young (Cornell)