On-the-job search lowers unemployment and increases wage dispersion, study finds.
Matching models of unemployment usually assume that worker and job flows are the same, but in reality, they are different. This study shows that when workers can search for jobs while employed and firms can re-advertise vacant positions, it affects unemployment dynamics. On-the-job search lowers unemployment and increases turnover. Unemployment inflow is more sensitive to economic cycles than outflow, suggesting most unemployment changes happen through this channel. More wage disparity encourages on-the-job search, leading to lower wages at the bottom of the pay scale. Changes in certain factors can significantly impact unemployment levels.