UNEMPLOYMENT DURATION UNDER FLEXIBLE INFORMATION ACQUISITION

Abstract

AbstractWe consider a worker's job search problem in which firms arrive sequentially, observe the worker's unemployment duration, and conduct an interview to learn about her unobservable productivity. Firms engage in fully flexible information acquisition subject to a uniformly posterior‐separable cost function. We provide a closed‐form characterization of equilibrium job search dynamics and demonstrate that endogenous information amplifies the “stigma” effect of long unemployment duration relative to exogenous information. We also show that lowering firms' information‐acquisition costs has ambiguous implications for a worker's unemployment duration.