Going the Extra Mile: Effort by Workers and Job‐Seekers

We introduce two types of effort into an otherwise standard labor search model to examine equilibrium determinacy. Indeterminacy occurs when wages rise sharply in response to a labor market tightening. Variable labor effort gives rise to short-run increasing returns to hours in production. This raises workers’ marginal product and wages, expanding the region of indeterminacy. Variable search effort makes workers search more intensively in a tighter labor market, which limits the rise in wages and shrinks the region of indeterminacy. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs.