Job Search, Labor Supply, and the Quit Decision: Theory and Evidence
Recently, several papers examined the quit decision. Donald Parsons considered a quit rate model based on the expected return to employed job search. Parsons relied on existing empirical evidence to justify the simplifying assumption in the model that workers quit only when a preferable job has been located. J. Peter Mattila provided further evidence that the majority of quits have lined up new jobs before quitting and suggested that quits into unemployment be viewed as i.. a fairly small, constant exogenous flow .. . (p. 239). In Section I, we provide a more complete theory of quit behavior within the context of an information and search approach. By identifying the cost of search as the utility value of time spent searching, new choice variables in optimal search strategy, the intensity of search and labor supply during search, are added.' This permits our model to encompass the three options facing an employed individual: employed job search, unemployed job search, or no job search. One result is that, contrary to the hypothesis of Mattila, the second option may be viewed as utility maximizing rather than 6exogenous behavior. To test the theoretical predictions gained in Section I, a new economy wide measure of the quits entering unemployment, synonymous with the number choosing unemployed job search, is computed in Section II. One result, consistent with our model's prediction, is that quits entering unemployment are procyclical with the demand for labor. Section III contains concluding remarks.
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