Unemployment Duration with Rationally Inattentive Firms

We consider a worker’s job search problem in which firms arrive sequentially, observe the worker’s unemployment duration, and conduct an interview to learn about her unobservable productivity. Firms engage in fully flexible information acquisition subject to a cost proportional to the expected entropy reduction, as in the literature on rational inattention. We provide a closed-form characterization of equilibrium job search dynamics and demonstrate that endogenous information amplifies the “stigma” effect of long unemployment duration relative to exogenous information. We also show that lowering firms’ information-acquisition costs has ambiguous implications for a worker’s unemployment duration.