Search in the Labour Market

Abstract

Over the postwar period economists have devoted considerable attention to the analysis of markets characterised by imperfect information regarding trading opportunities. It has been argued that under such circumstances it is rational for the individual market participant to undertake an amount of market search, the objective of which is to obtain an improvement in the extent of their information or knowledge regarding the various alternatives which are available. For example, in the labour market context, individual workers will, in general, possess less than perfect information regarding available job opportunities, while individual employers will likewise be imperfectly knowledgeable regarding labour availability. Thus, it is argued by search theorists, when confronted with such imperfect information it is rational for both the worker when looking for a job, and the employer when seeking to fill a vacancy, to engage in some form of information-gathering or search exercise. Clearly there are both costs and benefits involved in the pursuit of such search activity and as we shall see, search theory considers the ways in which the rational individual searcher balances one against the other in the design of an optimal search strategy. Although our own discussion of search will concentrate exclusively upon labour market search it is important to realise that the principles involved apply equally and analogously to the case of consumer search in the market for goods when confronted with uncertainty regarding both price and qualities.

This chapter draws freely upon Sapsford (1991).