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Abstract
Unemployed job seekers might worry about their chances of finding a job, especially when they remain unemployed for longer or labor market conditions turn out different than expected. We find, based on multiple survey samples, that job seekers anticipate a significant decline in their job-finding probability with an additional month of unemployment. However, they adjust their job-finding probabilities upward (downward) when the aggregate unemployment rate is unexpectedly low (high). Evaluated with a quantitative job search model, subjective job-finding probabilities substantially overreact to aggregate labor market conditions - consistent with Diagnostic Expectations. These beliefs have the potential to offset a substantial part of the negative consequences of moral hazard in job search.
Other Versions
The new version supersedes an earlier version NBER w31940 under the title “Updating about Yourself by Learning about the Market: The Dynamics of Beliefs and Expectations in Job Search”.