Monday, January 28, 2013

The unemployed should shop less for bargains, and they would not be unemployed

It sucks being unemployed. You have a significant loss in income and your self-esteem takes a hit, for example. However, you enjoy significantly more leisure time (as mentioned earlier, job search takes on average a ridiculously small amount of time). That leaves unemployed people also with plenty of time to do bargain shopping.

Greg Kaplan and Guido Menzio remind us that this negative externality also works the other way: when a company hires someone from the pool of unemployed, this person does less bargain shopping and increases the profits of other companies. Kaplan and Menzio manage to measure these externalities and argue they are strong enough to generate strategic complementarities that can trigger self-fulfilling equilibria. And in such case, expectations become very important. Another reason why I think it was a very bad idea for Paulson and Bernanke to publicly hit the panic button in 2008 (see I, II).


Anonymous said...


Economic Logician said...

Thanks, corrected.

Anonymous said...

The Economics of Extreme Couponing