Multi-Market Simultaneous Search: More Can Be Less

Abstract

Standard labor search and matching models feature procyclical search intensity and quick recoveries. Both predictions are at odds with the US labor market after the Great Recession. This paper shows that in an otherwise standard model that incorporates multi-market simultaneous search, a temporary financial crisis can raise both search intensity and unemployment persistently, like a stampede to an unemployment trap—workers search harder but end up discouraging job creation—even if only a fraction of workers can conduct simultaneous search. The observed productivity shocks reduce search effort and do not cause such hysteresis. Subsidizing entry costs can bring quick recovery.