Socially Optimal Job Search and Its Inducement

The level of effort in searching for a job has two dimensions: intensity and duration. We derive socially optimal intensities and reservation wages that determine the probability distribution of duration. The social optimum reflects the effect one person's productivity has on others' incomes. We show the need for subsidies that reduce the cost of search to the searcher, since financial support alone will not yield optimal effort. Governments now use certain search subsidies such as free counseling, but do not integrate them with financial support. Our results imply that integration is required for optimality. We also derive certain properties of optimal support and subsidies.