Essays on Information in Frictional Labor Markets

This dissertation comprises three essays centered around the role of subjective expectations in labor markets. In equilibrium search models of the labor market, processes such as wage formation, job creation, offer acceptance, among others, largely depend on agents’ expectations. Throughout these essays, I research how workers form expectations about aggregate and idiosyncratic factors that determine their behavior, with an emphasis on job search. In the first chapter, I quantify the pass-through from inflation expectations to job search behavior by designing and implementing a survey of United States workers. The second chapter studies whether workers’ perceived unemployment risk (i.e. their beliefs about job loss) responds to public information about mass lay-offs. The last chapter empirically contrasts individuals’ job loss beliefs with their realized employment outcomes and investigates how overestimation of unemployment risk affects on-the-job search decisions. Overall, this thesis shows that workers’ expectations about the idiosyncratic and aggregate risk they face predicts their decisions in the labor market. Workers incorporate information about local idiosyncratic events and other macroeconomic variables, such as inflation, when forming expectations about future unemployment. There is vast heterogeneity in expectations, which is only partially explained by factors such as demographics, job related characteristics or location. Together, the chapters in this dissertation provide foundations for future research on various fronts, such as the design of optimal unemployment insurance or employment protection policies, as well as how Central Bank communication can be used as a tool for expectations’ management.