Advance Notice and Job Search: The Value of an Early Start

Abstract

Recent studies of the effect of advance notice on jobless duration following displacement misspecify the relationship between these two variables by treating advance notice as a dummy regressor in conventional survival time models. Job search theory, however, suggests that the major impact of advance notice is not to alter the efficiency of search after job loss, but rather to allow workers to begin search before job loss. The authors develop a "sequential-regimes" job search model which allows search prior to displacement for workers with advance knowledge of layoff, with different search intensities before and after layoff. Maximum-likelihood estimates of the model are then computed using a pooled data set from the 1984 and 1986 Displaced Worker Surveys. Advance knowledge is found to significantly shorten jobless duration for most labor force groups. Using these estimates, the authors simulate the effect of various levels of advance knowledge on jobless duration. Their results indicate that relatively modest advance notice substantially benefits many displaced workers.

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