IZA DP No. 3697: Variable Search Intensity in an Economy with Coordination Unemployment
published in: The B.E. Journal of Macroeconomics: Contributions to Macroeconomics, 2010, 10 (1), Article 31
This paper analyzes an urn-ball matching model in which workers decide how intensively they sample job openings and apply at a stochastic number of suitable vacancies. Equilibrium is not constrained efficient; entry is excessive and search intensity can be too high or too low. Moreover, an inefficient discouraged-worker effect among homogenous workers emerges under adverse labor market conditions. Unlike existing coordination-friction economies with fixed search intensity, the model can account for the empirical relation between the job-finding rate and the vacancy-unemployment ratio, provided that search costs are small and that search intensity is sufficiently procyclical.