Joint-Search Theory: New Opportunities and New Frictions

Search theory routinely assumes that decisions about acceptance/rejection of job offers (hence, about labor market movements between jobs or across employment states) are made by individuals acting in isolation. In reality, the vast majority of workers are somewhat tied to their partners into couples and families, and decisions are joint. This paper studies, from a theoretical viewpoint, the joint job-search and location problem of a household formed by a couple (e.g., husband and wife) who perfectly pool income. The objective of the exercise, very much in the spirit of standard search theory, is to characterize the reservation wage behavior of the couple and compare it to the single-agent search model in order to derive the implications of partnerships for individual labor market outcomes and wage dynamics. We focus on two main cases. First, when couples are risk averse and pool income, joint-search yields new opportunities---similar to on-the-job search--- relative to the single-agent search. Second, when the couple faces offers from multiple locations and a cost of living apart, joint-search features new frictions and can lead to worse outcomes than single-agent search.