Going the Extra Mile: Effort by Workers and Job-Seekers
86 Pages Posted: 23 Jul 2020
Date Written: June 26, 2020
We introduce two types of effort into an otherwise standard labor search model to examine equilibrium determinacy. Indeterminacy occurs when wages rise sharply in response to a labor market tightening. Variable labor effort gives rise to short-run increasing returns to hours in production. This raises workers’ marginal product and wages, expanding the region of indeterminacy. Variable search effort makes workers search more intensively in a tighter labor market, which limits the rise in wages and shrinks the region of indeterminacy. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs.
Keywords: determinacy, effort, hours, labor, search intensity
JEL Classification: E23, E24, E32, E64, E71
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