Optimal job search in a changing world

“Optimal job search in a changing world“, Mathematical Social Sciences, 1999

This paper studies a job search model. Wage offers arrive in a Poisson fashion from a known distribution. Absent the option to quit, or in a stationary world, it is well-known that the reservation wage for an impatient worker is the flow return on the asset ‘being unemployed’. I assume: (1) the worker may hold a job at his leisure, quitting at will; and (2) the wage distribution evolves deterministically. I show that the reservation wage is the flow return on the ‘unemployment asset’ with an option to renew at the same rate. I consider the effect of this renewal option, and investigate the continuity properties of the reservation wage.