LABRST 3A03 Lecture Notes - Lecture 11: Frictional Unemployment, Stopping Time, Marginal Utility
14 Dec 2017
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Document Summary
Frictional unemployment associated with normal turnover of the work force. Sectoral shift causing structural unemployment: time lag in finding a job. Job search associated with imperfect information on both sides of the labour market causes delays. Job search involves costs and benefits (which are uncertain) Expected benefits have to be weighted against the expected costs. The condition of optimal search is a stopping rule: a minimum acceptable requirement (wage, benefits, working, conditions, etc. ) is chosen and the search is executed until the job that meets the acceptable requirements is found. Employees continue to search until expected marginal benefit equal expected marginal cost. Benefits and costs of search are likely to be related to the amount of time devoted to a job search. Marginal cost is rising with the amount of job search undertaken. Optimal amount of search will maximize the difference between b and c.
