Re-Employment Expectations and the Eye of Providence

55 Pages Posted: 31 Jul 2014

See all articles by Sonja C. Kassenboehmer

Sonja C. Kassenboehmer

Monash University - Centre for Health Economics

Sonja Schatz

University of Duisburg-Essen - Mercator School of Management

Date Written: July 2014

Abstract

Using a nationally representative panel dataset, this study investigates the extent and impact of systematic misconceptions of the currently unemployed concerning their statistical reemployment probability, affecting their labor market behavior in a sub-optimal way. Specifically, people with unemployment experience of 3 to 5 years significantly underestimate their objective re-employment probabilities as determined by the econometrician’s all-seeing ‘Eye of Providence’. Simply having information concerning the individuals’ previous unemployment experience is sufficient to make more accurate predictions than the individuals themselves. People who underestimate their re-employment probability are less likely to search actively for a job and indeed more likely to exit the labor force. If re-employed, they are more likely to accept lower wages, work fewer hours, work part-time and experience lower levels of job satisfaction. This information can be used by employment agency case workers to counsel clients better and prevent client adverse behavior and outcomes.

Keywords: job insecurity, re-employment expectations, prediction errors

JEL Classification: J64, J01, D84

Suggested Citation

Kassenboehmer, Sonja C. and Schatz, Sonja, Re-Employment Expectations and the Eye of Providence (July 2014). Melbourne Institute Working Paper No. 11//14. Available at SSRN: https://ssrn.com/abstract=2474519 or http://dx.doi.org/10.2139/ssrn.2474519

Sonja C. Kassenboehmer (Contact Author)

Monash University - Centre for Health Economics ( email )

Building 75, 15 Innovation Walk
Monash University
Clayton, Victoria 3800
Australia

Sonja Schatz

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

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