Estimating the Parameters of Interest in a Job Search Model

A lot of attention has been focussed on the issue of the effects of the level of benefits on the duration of employment in the last decade. These analyses have been carried out either in a reduced form framework or an approximate structural form framework allowing for some dynamics, or in a proper structural form static framework. The reduced form approach is mainly concerned with the specification and estimation of the conditional probability of leaving an unemployment spell - see for example, Lancaster (1979), Nickell (1979), Lancaster and Nickell (1980). Search theory is then made use of, to interpret the estimated coefficients in the model. Within the search theory framework, this conditional probability can be interpreted as a product of (a) the probability of coming across a vacancy and being offered the job when applied for, and (b) the probability of accepting this offer. The latter probability, being a function of a minimum acceptable wage (reservation wage) to the individual would therefopre depend on various variables like for example, personal characteristics, environmental influences etc. Hence, if one is interested in distinguishing various effects, one needs a structure for the problem.