Non-Stationary Job Search with Firing: a Structural Estimation.

This paper modifies Van den Berg's (1990) nonstationary model of search, considering the existence of a firing probability. The presence of firing makes unemployed workers lower their reservation wage because of the entitlement effect embodied in accepting a job offer. In this nonstationary environment, reservation wages have a stronger time-dependence than without firing. The model is estimated structurally using Spanish data for the period 1985-1996. The main finding from this estimation is that, although the decrease in reservation wages is the main determinant of the change in the hazard rate for the first four months, later on, the only effect comes from the job offer arrival rate, given that acceptance probabilities are roughly equal to one. These results are obtained with grouped duration and re-employment wage data, and controlling for the presence of unobserved heterogeneity in the offer arrival rate.