Chapter 36 Laboratory Tests of Job Search Models

This chapter is concerned with laboratory tests of job search models. Formal models of job search specify certain common elements, i.e., the length of the search horizon, the searcher's discounting rate of interest, the net costs (subsidies) to search in each period of the search horizon, and the searcher's knowledge about the wage offer distribution he or she faces. Because these factors are difficult, if not impossible, to observe in the naturally-occurring economy, controlled laboratory tests of the search model offer the only practical means for formally testing search models. A basic job search model of interest to economists specifies a finite search horizon. Searchers know the (discrete) wage offer distribution and must accept or decline an offer when it is received. The search model has sharp predictions for a utility maximizing, risk neutral agent. In this case the agent seeks to maximize the expected present value of the income from search. This can be accomplished by choosing an appropriate (minimally acceptable) reservation wage each period.