Working Paper: CEPR ID: DP6623
Authors: Robin Mason; Juuso Vlimki
Abstract: We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is an optimal job search problem when the worker's labour market opportunities are initially uncertain. We distinguish between two interpretations of the model. In the first, a worker learns about common market conditions, such as the number of potential employers, that affect all searchers. In the second, the worker learns about her idiosyncratic productivity distribution across firms. For the first model, we show that learning leads to higher wage demands by the workers. In the second model, we give sufficient conditions so that learning leads to higher wage demands for optimistic workers and lower demands for pessimistic workers due to learning.
Keywords: learning; stopping; optimal job search
JEL Codes: D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| learning about common market conditions (D41) | higher wage demands (J39) |
| worker's perception of market conditions (J29) | reservation wage (R21) |
| learning (C91) | higher wage demands for optimistic workers (J29) |
| learning (C91) | lower wage demands for pessimistic workers (J29) |
| absence of job offers (J68) | downward adjustment in beliefs (D91) |
| learning (C91) | decline in wage demands as beliefs become more pessimistic (J29) |
| controlled stopping effect (C92) | lower optimal wage demands (J38) |
| controlled learning effect (C92) | higher wage demands for optimistic workers (J29) |