Structural Adjustment and Endogenous Worker Recall Probabilities

19 Pages Posted: 24 Jun 2002

See all articles by Frode Meland

Frode Meland

University of Bergen - Department of Economics

Gaute Torsvik

University of Bergen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: April 2002

Abstract

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arises when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no effect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government may face a Samaritan's Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) "one too many" result may not hold if there is uncertainty concerning when the game ends.

Keywords: Structural Adjustment, Unemployment, Recalls, Search, War of Attrition

JEL Classification: D83, J64, R23

Suggested Citation

Meland, Frode and Torsvik, Gaute, Structural Adjustment and Endogenous Worker Recall Probabilities (April 2002). CESifo Working Paper Series No. 708. Available at SSRN: https://ssrn.com/abstract=312143

Frode Meland

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9230 (Phone)
+47 5 558 9210 (Fax)

Gaute Torsvik (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
55589225 (Phone)
55589210 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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