Deck 15: Job Search: External and Internal

Question 1

Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment: (a) a decline in the rate of inflation below the expected one and (b) a decrease in unemployment benefits.

Answer 1

A rate of inflation below the expected rate will decrease the probability that a job searcher will accept the next wage offer and thus increase the expected length of the worker's unemployment spell.  A decrease in unemployment benefits will have the opposite effect.

Question 2

What are the benefits and costs of job search Why don't job seekers endlessly search for a higher wage offer

Answer 2

Job Search: Job search is basically the search for best job offer for individuals and the search for a suitable employee to fill the positions vacant in an organization.
Need for job search arises due to many factors such as heterogeneity of jobs, different wage rate, difference in working conditions of firms, various opportunities for growth etc. Apart from this, the information about the entire above mentioned factors is imperfect and it takes time to acquire such data. Both benefits as well as cost are involved in acquiring information about the jobs available, their remuneration, their working culture, growth opportunities etc.
Benefits associated with the job search are as follows:
1. After doing the relevant search, a person can understand the requirement of an organization from the available job offers.
2. One can get to know about the opportunity cost of the leftover job while accepting a new one.
3. A comparison can be made in the working culture as well as the growth opportunities available in different jobs.
Costs involved in Job search are as follows:
1. Cost incurred on travelling from residence to firm for interviews.
2. Payment given to the placement services who act as mediator between the firm and the labor.
3. The opportunity cost of the leftover job by accepting some other job or by continuing the existing one.
Jobseekers do always keep searching for higher wage offers because there is other factors also which also influence the decision related to job acceptance, apart from wage rate. Some of them are job security, working environment, stability and the fear of unemployment in accordance with the non suitability of the new job, travel time and distance etc.

Question 3

What is meant by the term acceptance wage How does a job seeker determine his or her acceptance wage Why might the acceptance wage for one new college graduate differ from that of another new college graduate

Answer 3

Acceptance Wage: Acceptance wage is considered to be a wage rate at which a job can be accepted. The wage rate to be accepted is the one which equates the expected marginal benefit and the expected marginal cost of the search.
If a person looking for a job, is offered a wage rate above the acceptance wage rate (the marginal benefit is more than the marginal cost), then the person should stop searching for other jobs and continue with this one. But if a person is offered a wage below the acceptance wage (the marginal cost is more than the marginal benefit), a person should keep the search on till the requirement is met.
In order to understand the condition to accept the wage, consider the bar diagram given below:
In the above diagram, x axis shows the wage offers and y axis shows their relative frequency which is plotted in bar diagram. The vertical line W a reflects the optimal acceptance wage. The area between c and g shows the job offers above the acceptance wage (MB is greater than MC). So, the probability of occurrence of such an event is 80%
, the probability of accepting a job offer which lies within the range of c to g is 100%. And the probability of rejecting the same which lie between the range of
and c is 0% since the offer made within this range is below the acceptance wage.
It is also possible that the acceptance wage of one person (new college graduate) is different from another person (other college graduate) due to the following reasons:
1. The difference of expected inflation between the two results in the different accepted wage. If unexpected inflation exists in the market, it will result in higher nominal wage offer and thus the job search will fall. But it recovers back once people come to know that the wages are not up to the mark in real terms.
2. Unemployment benefits provided by government or previous employer reduce their cost of job search and thus changes the acceptance wage. So, having such benefits will increase the job search.

Question 4

Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment: (a) a decline in the rate of inflation below the expected one and (b) a decrease in unemployment benefits.

Question 5

How do you explain the existence of internal labor markets What are their advantages to employers To workers

Question 6

How does a worker search for a better job in an internal labor market What is the employer's search process within internal labor markets

Question 7

Explain the following statement: "Unions are both a consequence and a cause of internal labor markets." Why might the presence of internal labor markets in a firm encourage unionization

Question 8

Do you think internal labor markets enhance or detract from efficiency How might one argue that the realization of dynamic efficiency is more important than achieving static efficiency Do you agree