Job Search and Impatience

Abstract

How does impatience affect job search? More impatient workers search less intensively and set a lower reservation wage. The effect on the exit rate from unemployment is unclear. In this paper we show that, if agents have exponential time preferences, the reservation wage effect dominates for sufficiently patient individuals, so increases in impatience lead to higher exit rates. The opposite is true for agents with hyperbolic time preferences: more impatient workers search less and exit unemployment later. Using two large longitudinal data sets, we find that various measures of impatience are negatively correlated with search effort and the exit rate from unemployment, and are orthogonal to reservation wages. Overall, impatience has a large effect on job search outcomes in the direction predicted by the hyperbolic discounting model.

Discounting financial literacy: Time preferences and participation in financial education programs

“…First, our results speak to the presence of selection effects in the evaluation of financial programs. Previous research has found that, in general, more patient individuals have better financial outcomes, since they search longer for a good job (DellaVigna and Paserman, 2005), experience steeper wage growth (Munasinghe and Sicherman, 2006), take up welfare programs earlier (Fang and Silverman, 2006), have higher credit scores, and are less likely to default on their loans (Meier and Sprenger, 2006 The rest of the paper is organized as follows: Section 2 presents the design of the field study and of the choice experiments, Section 3 presents the results, and Section 4 concludes by elaborating on the paper's policy implications.…”

Procrastinators and Hyperbolic Discounters: Probability of Transition from Temporary to Full-time Employment

“…The effects of time preferences have been examined on on-the-job searches by the unemployed (DellaVigna and Paserman, 2005) and job-to-job transitions, including internal promotions and external job mobility (Drago, 2006;van Huizen, 2010). In standard economic models of on-the-job searches, under which agents are assumed to discount future costs and benefits exponentially, individuals with higher discount rates tend to be impatient.…”

“…Impatience has two inconsistent effects on job search effort and reservation wage decision. While impatient agents are more likely to accept the job offer despite low wages and exit unemployment, they prefer to avoid the immediate costs and defer job search activities (DellaVigna and Paserman, 2005). The effect of impatience on job search varies by the assumption of exponential and hyperbolic time preferences.…”

“…Those who already had jobs, on the other hand, could have pursued promotions or a position change, or quit their jobs and taken temporary work until they could find other jobs offering higher wages. If the analysis is based on the premise that some of the unemployed take temporary work and the others remain jobless, these subjects may display similar behavioral patterns concerning the job search and reservation wage of the unemployed predicted by exponential and hyperbolic discounting, as examined by DellaVigna and Paserman (2005). In addition, if we can assume that some of the employed continue working for the same employer, and the others quit their jobs and take temporary jobs until they find better jobs, these subjects may have hyperbolic discounting characteristics, as found by van Huizen (2010).…”

“…Notably, the exit rate from unemployment status is affected by the degree of patience, which varies by the assumptions of exponential and hyperbolic discounting (DellaVigna and Paserman, 2005;Paserman, 2008). Impatient agents with exponential time preferences tend to lower the reservation wage, and this may increase the exit rate from unemployment.…”