Going the Extra Mile: Effort by Workers and Job-Seekers

86 Pages Posted: 23 Jul 2020

Date Written: June 26, 2020

Abstract

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

Suggested Citation

Hertweck, Matthias S. and Lewis, Vivien and Villa, Stefania, Going the Extra Mile: Effort by Workers and Job-Seekers (June 26, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1277, Available at SSRN: https://ssrn.com/abstract=3659476 or http://dx.doi.org/10.2139/ssrn.3659476

Matthias S. Hertweck

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Vivien Lewis

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stefania Villa (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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