Abstract
We ananlyze general equilibrium effects of hyperbolic discounting among unemployed workers in search equilibrium. We show that hyperbolic discounting changes the workers' trade-off between high wages and a high exit rate from unemployment, thus influencing the behavior of firms. More specifically, firms 1) increase their number of vacancies, 2) reduce the quality of the vacancies (less capital per worker), and 3) reduce the wage attached to the vacancies. We discuss welfare consequences and derive policy implications. We find that unemployment benefits together with subsidized (or monitored) job search may increase welfare. If these policy measures are not availiable, minimum wages and subsidies to high-quality jobs may be warranted.
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