This paper studies a simple directed search model where workers have private information about their own productivity. Their productivity is observable to firms once workers apply but not verifiable so that it cannot be directly rewarded by firms in the form of higher wages. This unobservable heterogeneity among workers provides a very natural way of modeling application decisions. More important, this approach breaks the tight connection between the wage and unemployment duration that appears to constitute a weakness of the directed search approach. In a particular, using the reciprocal of the employment probability as a proxy for average duration of unemployment, the model predicts an inverse relationship between the wage at which a worker leaves unemployment and the average duration of unemployment. This prediction is consistent with existing empirical work on the topic, but differs from previous models of directed search.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.