Search Unemployment

This paper studies several types of informational unemployment. In the first, employer and employee have imperfect information about one another when employment commences; after the truth becomes known the employee may quit or be fired. The time till permanent employment is the random variable of interest, and necessary and sufficient conditions for its expected value to be nondecreasing in the firing probability are presented. Two kinds of layoff are then analyzed. The first has a zero probability of recall, whereas the second has a positive recall probability. The properties of the reservation wage are obtained for each. For example, it is shown that when the conditional probability of recall is increasing [decreasing], the laid off worker searches if and only if the length of unemployment is less [more] than some critical number. The interaction between moral hazard and unemployment insurance is the last subject to be considered.