DP483 | Unemployment through `Learning from Experience'

Publication Date

01/11/1990

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Abstract

This paper shows that when workers have some market power and face substantial uncertainty concerning their productivity, it may be in their interest to formulate their wage claims with a view to the information thereby revealed. This learning behaviour may in turn be responsible for unemployment. Our analysis shows how the process of information acquisition through wage claims generates a higher rate of youth unemployment and long-term unemployment and a lower probability of dismissal for incumbent workers than would otherwise be the case.