An Equilibrium Theory of Learning, Search and Wages

Francisco Gonzalez and Shouyong Shi

Working Papers from University of Toronto, Department of Economics

Abstract: We construct an equilibrium theory of learning from search in the labor market, which addresses the search behavior of workers, the creation of jobs, and the wage distribution as functions of unemployment duration. In the model, each worker has incomplete information about his job-finding ability and learns about it from his search outcomes. The theory formalizes a notion akin to that of discouragement: over the unemployment spell, unemployed workers update their beliefs about their job-finding abilities downward and reduce their desired wages. One contribution of the paper is to integrate learning from search into an equilibrium framework. We show that the equilibrium exhibits wage dispersion among homogeneous workers, and that workers with longer unemployment spells have lower permanent incomes. Another contribution is to apply lattice-theoretic techniques to analyze learning from experience, which is useful because learning generates convex value functions and, in principle, multiple solutions to a worker's optimization problem.

Keywords: Learning; Wages; Unemployment; Directed search; Supermodularity. (search for similar items in EconPapers)
JEL-codes: D83 E24 J64 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-08-12
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: An Equilibrium Theory of Learning, Search, and Wages (2010)
Working Paper: An Equilibrium Theory of Learning, Search and Wages (2009)
Working Paper: An Equilibrium Theory of Learning, Search and Wages (2009)
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