Academic journal article Atlantic Economic Journal

The Effect of Transitional Employment on Search Duration: A Selectivity Approach

Academic journal article Atlantic Economic Journal

The Effect of Transitional Employment on Search Duration: A Selectivity Approach

Article excerpt

Introduction and Background

One difficult decision that job searchers face as their searches drag on and resources diminish is whether to take a job they do not view as permanent while continuing to search. Taking a nonpermanent or transitional job while continuing to search would alleviate part of the financial burden that accompanies unemployment. However, it would also leave less time and energy available to be devoted to finding a permanent job and may increase a searcher's permanent job acceptance cost [Burgess, 1992]. Taking a transitional job may also be strategic in that it allows a searcher the financial freedom to wait for even better permanent job offers and allows the searcher to avoid any negative stigma associated with unemployment.(1) This paper provides an analysis of the impact of transitional employment on the search duration and improves upon previous literature by controlling for the endogeneity of the decision to take a transitional job while allowing the search escape pattern to differ across search categories.(2) It is found that by taking a transitional job, a search spell is extended by almost eight months and the optimal hazard rate occurs much later for a transitional worker.

Throughout this paper an "unemployed searcher" is defined as one who begins searching while unemployed. An "employed searcher" is defined as one who begins searching while employed. Searchers in both of these categories may be observed with having a transitional job sometime during their search spell. A job that begins and ends during a reported search spell is referred to as a "transitional job."

The early literature of search theory addressed the problem of explaining the behavior of the unemployed searcher only. The pioneering work in this area is attributed to Stigler [1961, 1962], followed later by Mortensen [1970] and Gronau [1971].(3)

Tobin's [1972] criticism of the search literature for requiring that all job searchers be unemployed spawned a new flood of contributions to that literature. New theoretical models incorporated the employed search (through an individual choice of either a specific search state [Burdett et al., 1984] or a particular level of search intensity that varies inversely) with the level of employment [Mortensen, 1977; Burdett, 1979; Yoon, 1981; Benhabib and Bull, 1983]. Empirical evidence of the extent to which individuals participate in an employed or on-the-job search was offered by Mattila [1974], Viscusi [1979], and Black [1981]. Kahn and Low [1982, 1984] provided empirical analyses of the determinants of individual search intensity.

Direct comparisons of the search outcomes of employed and unemployed searchers are few in number due to the scarcity of appropriate data. Few surveys ask search questions of employed respondents. These comparisons are also conflicting in their final conclusions. While Holzer [1987] reports that unemployed searchers are more likely than employed searchers to gain new employment, Blau and Robins [1990], using a different data set, report just the opposite. The outcome of this debate has implications for the theory of search unemployment. The theory implies that part of the observed unemployment rate is a result of the searcher holding out for a more desirable job offer. The level of true unemployment (that which reflects the job searcher's inability to find any job) is lower than the reported unemployment statistics suggest (see Clark and Summers [1979]). A necessary condition for search unemployment to be consistent with rational behavior is that searching for a job while unemployed is somehow more efficient than searching while employed. The result reported by Blau and Robins [1990] indirectly challenges the validity of search unemployment and suggests, prima facie, that the searcher should perhaps accept his first job offer, then continue to search while employed. The results presented in this paper indicate otherwise. …

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