Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence and Bias

86 Pages Posted: 26 Nov 2018

See all articles by Andreas I. Mueller

Andreas I. Mueller

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Johannes Spinnewijn

London School of Economics & Political Science (LSE)

Giorgio Topa

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: November 2018

Abstract

This paper analyses job seekers' perceptions and their relationship to unemployment outcomes to study heterogeneity and duration-dependence in both perceived and actual job finding. Using longitudinal data from two comprehensive surveys, we document (1) that reported beliefs have strong predictive power of actual job finding, (2) that job seekers are over-optimistic in their beliefs, particularly the long-term unemployed, and (3) that job seekers do not revise their beliefs downward when remaining unemployed. We then develop a reduced-form statistical framework where we exploit the joint observation of beliefs and ex-post realizations, to disentangle heterogeneity and duration-dependence in true job finding rates while allowing for elicitation errors and systematic biases in beliefs. We find a substantial amount of heterogeneity in true job finding rates, accounting for almost all of the observed decline in job finding rates over the spell of unemployment. Moreover, job seekers' beliefs are systematically biased and under-respond to these differences in job finding rates. Finally, we show theoretically and quantify in a calibrated model of job search how biased beliefs contribute to the slow exit out of unemployment. The biases can explain more than 10 percent of the incidence of long-term unemployment.

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Suggested Citation

Mueller, Andreas I. and Spinnewijn, Johannes and Topa, Giorgio, Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence and Bias (November 2018). NBER Working Paper No. w25294. Available at SSRN: https://ssrn.com/abstract=3290429

Andreas I. Mueller (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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IZA Institute of Labor Economics ( email )

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Germany

Centre for Economic Policy Research (CEPR)

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Johannes Spinnewijn

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
00 44 (0) 20 7955 7022 (Phone)

HOME PAGE: http://econ.lse.ac.uk/staff/spinnewijn_johannes/

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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