Reference-Dependent Job Search: Evi dence from Hungary
Abstract:
We propose a model of job search with refe rence-dependent preferences, where the reference point is given by recent i ncome. Newly unemployed individuals search hard given that they are at a lo ss, but over time they get used to lower income, and thus search less. They search harder again in anticipation of a benefit cut, only to ultimately g et used to it. The model fits the typical shape of the exit from unemployme nt, including the spike at the UI exhaustion point. The model also makes un ique predictions on the response to benefit changes. We provide evidence us ing a reform in the unemployment system in Hungary. In November 2005, Hunga ry switched from a single-step UI system to a two-step system, with unchang ed overall generosity. We show that the system generated increased hazard r ates in anticipation of, and especially following, benefit cuts in ways the standard model has a hard time fitting, even when allowing for unobserved heterogeneity. We structurally estimate the model and estimate a weight on gain-loss utility comparable to the weight on the standard utility term, an d a speed of adjustment of the reference point in the order of eight months . The results suggest that a revenue-neutral shift to multiple-step UI syst ems can speed exit from unemployment.
DTSTAMP:20260429T022859Z DTSTART:20140909T173000Z DTEND:20140909T190000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR