Job search costs and incentives

Andriy Zapechelnyuk, Ro’i Zultan

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

We demonstrate that policies aimed at reducing frictional unemployment may lead to the opposite results. In a labor market with long-term wage contracts and moral hazard, any such policy reduces employees’ opportunity costs of staying on a job. As employees are less worried about losing their job, a smaller share of employees is willing to exert effort, leading to a lower average productivity. Consequently, firms create fewer vacancies, resulting in lower employment and decreased welfare.
Original languageEnglish
Pages (from-to)181-202
Number of pages22
JournalEconomic Theory Bulletin
Issue number2
Early online date10 Sept 2019
Publication statusPublished - Oct 2020

Keywords / Materials (for Non-textual outputs)

  • job search
  • moral hazard
  • labor market
  • unemployment insurance


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