Nick Rowe steps into a debate.
The better the job you want to get, the longer you expect to search (or wait) before you get it. ..
Now suppose the economy enters a recession. The trade-off worsens … You choose a new point. You will probably choose a point as drawn, expecting to search or wait longer and get a worse quality job.
He illustrates with a nice diagram.
It’s a neat theory, and I like it better than models that do not use job search. But I don’t really buy it.
From a PSST perspective, the searching that is important is the search for new patterns of sustainable specialization and trade. It’s not like a marriage market in which a suitable match exists and you just have to find it.
Thanks Arnold.
I think I might have the right metaphor: standard search theory is Looking for Mr Goodbar. PSST is Eyes Wide Shut plus 50 Shades of Gray. You need to find the right couple of dozen partners and figure out the right mix of kinks to make it all work.
I think it is all in the shape of the curves…nootch!
I think this is at least partly backwards (maybe I should write this on Nick’s site)
By that I mean, if a person is in high demand in some labor market (I had that joy in 1984) very good job opportunities will be found very quickly, searching longer won’t find better ones, just different ones. If someone is in low demand in any labor market, they will have to search for a long long time to find any job (regardless of their skills or value as people.) I observed some of that first hand in the recession.
So a longer job search is NOT a sign of “finding a better position” or even “searching out the right PSST”. Rather, a long job search means there’s a low demand for the applicant’s labor offerings.
-> Long search implies unsatisfactory position….
Especially as the predominate feature of recessions is the decline in turnover, the lack of employees willing to give up a job, as well as the lack of new ones being created, and even when new ones are being created in recovery, the backlog of unemployed mean this won’t change, possibly for a long time, and possibly as much due to decline in participation as to job creation when it does. While the search for new patterns take time, it also takes effort, and that is where monetary policy can make a difference. If no one believes the economy will grow, or will grow faster than population, they won’t put much effort into that search.
Anecdotal, but Nick’s post matches my experience in the pre-crisis banking industry. Occasionally, clients of ours would be involved in mergers/acquisitions and someone or other would get pushed out. The executives and EVP’s tended to be out of work longer, simply due to the fact that there aren’t that many Chief Credit Officer positions out there as there are frontline loan officer positions. And bear in mind, once you’ve been a CCO, you don’t want to take a step back to a VP position; that makes you look like a failure as a CCO. I guess instead of wage stickiness, you could think of it like title stickiness or status stickiness. Basically, workers are reluctant to take positions that are lower on the totem pole than their previous positions because downward career trajectories don’t look good on a resume. Take that lower-level position and you might get stuck there, permanently.
Back in the 1970s — the last time I dealt much with head hunters — the rule of thumb among head hunters that they typically told job seekers for professional jobs was to expect a week of searching for every thousand dollars of salary in your reservation wage. Their other rule of thump for professionals and managers was that your salary should be about the same as your age. So a 40 year old should expect their job search to take 40 weeks. They did not use the term reservation wage, but that expresses the idea.
In 1975 average hourly earnings was $4.73 and in 2014 it was $20.73, or a 4.35 fold increase. Given the increase in income inequality that rule of thumb should now be about one week for every 5 thousand dollar in your reservation wage.