Job Search Models, the Duration of Unemployment, and the Asking Wage: Some Empirical Evidence

Abstract

Three recent untested theoretical models of the wage setting behavior of the unemployed jobseeker by Gronau, Mortensen, and McCall are compared. While the Mortensen model predicts that the minimum asking wage is constant over the duration of unemployment, the models of Gronau and McCall, for different reasons, predict that the minimum asking wage declines over the duration of unemployment. Data from a sample of unemployed jobseekers are used to test the alternative implications. The McCall model, emphasizing downward flexibility in the minimum asking wage in response to revised wage expectations over the duration of unemployment, is the best description of the wage setting behavior of unemployed jobseekers. The search for the microeconomic foundations of macroeconomics has called attention to the wage setting behavior of the unemployed jobseeker. This wage setting behavior has been analyzed as neoclassical maximizing behavior, given incomplete knowledge of demand. Several competing theoretical models have been offered. Dale T. Mortensen has advanced a search model which implies the jobseeker's minimum asking wage would remain constant throughout the duration of search and unemployment [6]. More recently, Reuben Gronau has developed a search model in which he showed that an unemployed job-hunter would reduce his minimum asking wage over the duration of unemployment [3]. Earlier, J. J. McCall [5] proposed a job search model in which a job-hunter lowered his minimum asking wage over the duration of unemployment for a reason other than that suggested by Gronau. The different implications of the The author is currently a Brookings Economic Policy Fellow, Department of Health, Education, and Welfare. * The author wishes to thank Edward D. Kalachek, H. Gregg Lewis, Ethel B. Jones, and the referees for helpful comments. [Manuscript received March 1974; accepted October 1974.] The Journal of Human Resources * X 2 This content downloaded from 157.55.39.27 on Wed, 07 Sep 2016 05:50:25 UTC All use subject to http://about.jstor.org/terms