Learning and job search dynamics during the Great Recession

Tristan Potter

doi:10.1016/j.jmoneco.2020.04.006

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Learning and job search dynamics during the Great Recession

Journal article

Peer reviewed

Learning and job search dynamics during the Great Recession

Tristan Potter

Journal of monetary economics, v 117, pp 706-722

Jan 2021

DOI: https://doi.org/10.1016/j.jmoneco.2020.04.006

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Abstract

Learning

Sequential search

Unemployment

•Evidence that learning helps explain declining search effort during Great Recession.•Tractable model of search in which beliefs have nonmonotinic effect on search effort.•Structural estimation indicating that learning provides strong account of search data.•Evidence from search decisions that job seekers overestimate job-finding prospects. Krueger and Mueller (2011) document that search effort declined with unemployment duration during the Great Recession. I show that variation in past effort explains this decline. Furthermore, job offers increase subsequent effort. These facts are inconsistent with standard models of search. I introduce a model of sequential search in which workers are uncertain about the offer arrival process and learn through search. Evolving beliefs influence search through two competing channels: the opportunity cost of leisure and the option value of unemployment. Estimation of the model indicates that learning provides a strong account of job search dynamics during the Great Recession.