Exposure to Labor Market News and Expectations about Job Search & Earnings

Description

I show that workers update expectations about job search and earnings when exposed to labor market news. To identify the impact of positive news, I exploit a unique setting, Foxconn’s announcement to create thousands of high-paying jobs in Racine, Wisconsin. Exposure to positive news increases the expected salary growth at the current firm, even if an individual does not expect the employer to match any potential outside offer. This implies that positive news leads to an increase in workers’ perceived bargaining power, but also that firms and workers frequently bargain over wages, even without explicit outside offers. I also find that individuals expectations are consistent with predictions from directed search models. Individuals exposed to positive labor market news do not adjust their expectations about the job arrival rate. But, conditional on expecting an offer, they revise their expectations about potential salary offered considerably upward. Investigating whether individuals act on their updated expectations, I find suggestive evidence that exposure to positive news leads to an increase in current consumption expenditures. Using Foxconn’s later announcement of a downward revised new investment plan to identify the impact of bad news, I find asymmetries in the updating process.

Period	07 May 2022
Event title	SOLE (Society of Labor Economists) Annual Conference 2022
Event type	Conference
Location	United StatesShow on map