The Paradox of Search Effort and Rational Labor Stampedes

46 Pages Posted: 26 Apr 2018 Last revised: 27 Oct 2019

See all articles by Xiaodong Fan

Xiaodong Fan

Monash University - Department of Economics

Chao He

East China Normal University (ECNU)

Date Written: October 23, 2019

Abstract

Standard labor search and matching models feature procyclical search intensity and quick recoveries. Both predictions are at odds with the US labor market after the Great Recession. This paper shows that in an otherwise standard model that incorporates multi-market simultaneous search, a temporary financial crisis can raise both search intensity and unemployment persistently, like a stampede to an unemployment trap—workers search harder but end up discouraging job creation—even if only a fraction of workers can conduct simultaneous search. The observed productivity shocks reduce search effort and do not cause such hysteresis. Subsidizing entry costs can bring quick recovery.

Keywords: Search Intensity, Unemployment, Jobless Recovery, Financial Shocks, Simultaneous Search

JEL Classification: E24, J64

Suggested Citation

Fan, Xiaodong and He, Chao, The Paradox of Search Effort and Rational Labor Stampedes (October 23, 2019). Available at SSRN: https://ssrn.com/abstract=3159118 or http://dx.doi.org/10.2139/ssrn.3159118

Xiaodong Fan

Monash University - Department of Economics ( email )

Australia

Chao He (Contact Author)

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

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