Structural Adjustment and Endogenous Worker Recall Probabilities
19 Pages Posted: 24 Jun 2002
Date Written: April 2002
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: Suggested Citation