Job search incentives and job match quality

a r t i c l e i n f o JEL classifications: C14 C15 C41 J64 J65 J68 Keywords: Multivariate hazards Job search Job quality Timing-of-events NPMLE MMPH We examine the impacts of time-limited unemployment insurance (UI) and active labor market programs (ALMP) on the duration and outcome of job search in Norway. We use a comprehensive simultaneous equations model accounting for i) the duration of unemployment spells; ii) their outcomes, iii) subsequent employment stability; and iv) the earnings level associated with the first job. We find that time invested in job search pays off in form of higher earnings once a job match is formed. ALMP raises the probability of eventually finding a job as well as expected earnings, but at the cost of lengthening job search. It is a well-known fact that job search conditions—as reflected in, e.g., unemployment insurance (UI) and active labor market programs (ALMP)—affect the opportunity cost of continued job search, and, hence, a job seeker's choosiness and search effort. Participation in ALMP may also improve the human capital of the job seeker, and, thus, the distribution of available job opportunities. A number of empirical studies have examined how these effects play out with respect to the duration and outcome of unemployment spells and the quality of a subsequent job match. Leaving aside the huge existing empirical literature on the effects of UI insurance and ALMP on unemployment duration (see Card et al. (2007), Kluve et al. (2007) and Card et al. (2010) for recent reviews), our paper relates closely to two different strands of the literature. The first is the empirical literature on the impacts of unemployment duration and UI generosity on subsequent job quality. to find favorable impacts of time invested in job search, the more recent evidence is mixed. 1 Based on a quasi-natural experiment, Van Ours and Vodopivec (2008) find that a reform that shortened the maximum duration of UI benefits in Slovenia reduced the duration of unemployment sharply, while leaving the post-unemployment wages and job duration unaffected. They conclude that reducing job search subsidies will speed up the matching process with no loss in the quality of the post-unemployment job match. Similar results are reported for Germany by Schmieder et al. (2010) on the basis of a regression discontinuity methodology exploiting that maximum UI duration depends on exact age. Tatsiramos (2009) uses the European Community Household Panel (ECHP) to …