DP2164 Search Unemployment with Advance Notice

Author(s): Pietro Garibaldi
Publication Date: June 1999
Keyword(s): Advance Notice, Search Theory, Unemployment Flows
JEL(s): J6
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2164

This paper proposes and solves a search unemployment model in which job separation requires mandatory notice. When jobs are subject to idiosyncratic uncertainty, firms would issue advance notice even with good business conditions. We show that such precautionary policy is not pursued if it entails sufficiently high productivity losses. If workers can search on the job, an increase in advance notice increases job-to-job movements, reduces unemployment flows, and has ambiguous effects on equilibrium unemployment. Results are consistent with the fact the North American and European labor markets, despite their differences in job security provisions, experience similar turnover rates and dissimilar unemployment flows.