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Contents
1 Basic job search theory 5
1.1 The basic model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1.1 The search process and the reservation wage . . . . . . . . . . . . . . . . . . . 5
1.1.2 Comparative statics of the basic model . . . . . . . . . . . . . . . . . . . . . . . 8
1.1.3 The choice between non-participation, job-seeking, and employment . . . . . . 9
1.2 Extensions of the basic model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2.1 Eligibility and unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.2.2 On-the-job search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.2.3 Choosing how hard to look . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.2.4 Non-stationary environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 The equilibrium search model and the theory of optimal unemployment insurance 19
2.1 Job search and labor market equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.1 The inadequacies of the basic model . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.2 An equilibrium search model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1.3 Labor market equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.4 Final remarks on equilibrium search models . . . . . . . . . . . . . . . . . . . . 24
2.2 The tradeo¤ between insurance and incentive in compensating for unemployment . . . 25
2.2.1 An agency model for the study of unemployment insurance . . . . . . . . . . . 26
2.2.2 The optimal contract when the search e¤ort is veri…able . . . . . . . . . . . . . 27
2.2.3 The optimal contract when search e¤ort is unveri…able . . . . . . . . . . . . . . 29
3 Empirical aspects of job search 36
3.1 The econometrics of duration models . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.1.1 The hazard function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.1.2 Parametric estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1.3 Introducing explanatory variables . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Main results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.2.1 Measuring unemployment insurance bene…t . . . . . . . . . . . . . . . . . . . . 44
3.2.2 The determinants of unemployment duration . . . . . . . . . . . . . . . . . . . 45
4 Summary and Conclusion 51
5 Related topics in the book 52
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6 Further readings 53
7 Appendix: the discounted cost of an unemployed person 54
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