Labor Supply and Optimization Frictions: Evidence from the Danish Student Labor Market

TY - JOUR

T1 - Labor Supply and Optimization Frictions

T2 - Evidence from the Danish Student Labor Market

AU - Søgaard, Jakob Egholt

PY - 2019/5

Y1 - 2019/5

N2 - Using Danish administrative data, I investigate the magnitude and nature of optimization frictions in the labor market of Danish students. Danish students face a unique institutional setting that makes it possible to distinguish between different types of frictions and estimate their effect on individual utility. I find that frictions significantly affect observed labor market outcomes. In particular, the empirical evidence points to inattention as the dominant type of friction. In contrast, my findings appear inconsistent with real adjustment costs, price misperception and gradual learning. Overall, optimization frictions reduce the utility of individuals by approximately 2–3% of disposable income.

AB - Using Danish administrative data, I investigate the magnitude and nature of optimization frictions in the labor market of Danish students. Danish students face a unique institutional setting that makes it possible to distinguish between different types of frictions and estimate their effect on individual utility. I find that frictions significantly affect observed labor market outcomes. In particular, the empirical evidence points to inattention as the dominant type of friction. In contrast, my findings appear inconsistent with real adjustment costs, price misperception and gradual learning. Overall, optimization frictions reduce the utility of individuals by approximately 2–3% of disposable income.

M3 - Journal article

SN - 0047-2727

VL - 173

SP - 125

EP - 138

JO - Journal of Public Economics

JF - Journal of Public Economics

ER -