Department of Economics
Central European University
Nádor u 9.
NBER Working Papers and Publications
|May 2016||Reference-Dependent Job Search: Evidence from Hungary|
with Stefano DellaVigna, Attila Lindner, Johannes F. Schmieder: w22257
We propose a model of job search with reference-dependent preferences, where the reference point is given by recent income. Newly unemployed individuals search hard given that they are at a loss, but over time they get used to lower income, and thus reduce their search effort. In anticipation of a benefit cut their search effort rises again, then declines once they get used to the lower benefit level. The model fits the typical pattern of the exit from unemployment, even with no unobserved heterogeneity. The model also makes distinguishing predictions regarding the response to benefit changes, which we evaluate using a unique reform. In 2005, Hungary switched from a single-step UI system to a two-step system, with unchanged overall generosity. The system generated increased hazard rates in...
Published: Stefano DellaVigna & Attila Lindner & Balázs Reizer & Johannes F. Schmieder, 2017. "Reference-Dependent Job Search: Evidence from Hungary*," The Quarterly Journal of Economics, vol 132(4), pages 1969-2018.