The Paradox of Search Intensity

Abstract

In standard labor search and matching models, the search intensity (SI) of unemployed workers is procyclical and complements job creation. Both predictions are at odds with the US labor market following the Great Recession. To address these inconsistencies, this paper extends the standard model to incorporate multi-market simultaneous search (MMSS). Adverse aggregate shocks can raise SI as workers simultaneously search in more markets because the incentives are decreasing in the local job-finding rate. This broader search effort leads to higher offer rejection, which in turn discourages firm entry. The offer-rejection externality can result in multiple equilibria. In the calibrated model, a temporary financial crisis can cause a persistent increase in both SI and unemployment.

Keywords: E24, J64 search intensity, unemployment, jobless recovery, financial shocks

JEL Classification: E24, J64