Costs And Benefits

According to "New Classical" economics,

The benefit of longer job search is that, if you wait long enough, you may get a better wage and conditions.
The cost is an opportunity cost -- you have to pass up the offers you get in the meantime. You could get pretty hungry waiting.

The idea is that potential employees come to the job market without really knowing how much their labor is worth. They have an estimate of what it is worth, the "reservation wage." If the first offer is for a wage (and conditions) better than that standard, the job-seeker will accept it; but if it is not as good as the "reservation wage," the person will turn the offer down and wait for a better one. But, at the same time, the fact that the offer you get is less than you thought your labor was worth "tells you something." As time goes by and the person doesn't get a job, he will gradually revise his estimate of what his labor is worth and reduce his "reservation wage." Eventually the "reservation wage" drops low enough that an offer comes in above it -- or the waiting pays off, and the person gets an offer at or even above the original standard. Then the waiting has paid off with a superior job-match, which is better for everybody.

The longer people "wait," the longer they stay unemployed, so, (ceteris paribus) the more unemployed people there are. Further: the greater the benefits of search are, and the lower the costs are, the longer people will search, so the more people will be unemployed, ceteris paribus.

Two Issues