Job Search and Hyperbolic Discounting

Abstract

We propose a simple test of hyperbolic versus exponential preferences in a job search model. More impatient workers search less intensively but also accept lower wages. If agents have hyperbolic preferences, the search effect dominates, so increases in impatience lead to lower exit rates from unemployment. The opposite is generally true for agents with exponential preferences: more impatient workers exit unemployment sooner.

Using two large longitudinal data sets, we find that various measures of impatience are negatively correlated with the exit rate from unemployment, contrary to the predictions of the exponential discounting model. A human capital story does not explain the results either. The empirical findings support the hyperbolic model.

JEL Classification: A12, C41, C73, D90, J64