Search Intensity

Standard theories of labor market search predict that workers should search less when the returns to search are low, yielding the counterfactual prediction that labor market participation and other measures of search intensity should be strongly procyclical and unemployment should be acyclical or even procyclical. I argue that this is a consequence of how search intensity is modelled. In a discrete time setting, I model search intensity as a worker’s choice of the number of simultaneous applications to make. My main result is that when the cost of making an application is small, a worker who has at least an eighty percent probability of getting a job responds to an adverse shock by increasing his search intensity. Workers who are less likely to get jobs become discouraged, reducing their search intensity. ∗I am grateful seminar participants at MIT and the Philadelphia Federal Reserve Bank Conference on Macroeconomics (2004) for valuable comments, and in particular to Derek Laing. I also thank the National Science Foundation and the Sloan Foundation for financial support.