Macroeconomic Sentiments and the Job Search Behavior

This paper provides evidence using survey data from the Survey of Consumer Expectations that workers' expectations towards the economy and specifically the labor market have a significant impact on their search effort. Pessimistic workers who expect the labor market to do worse in the future significantly increase their current search intensity, while optimistic workers report a decrease. Using the 2016 US Presidential election as an exogenous shock to macroeconomic sentiments, I find that Republican states became optimistic immediately after the elections and reported a decline in search hours by 3.75 hours/week relative to the Democrat states that became pessimistic about the economy. The paper evaluates the effect of an expansionary corporate tax cut policy by introducing workers with heterogeneous beliefs in a stylized search model with endogenous search effort. Presence of heterogeneous beliefs dampens the effect of such a policy on the unemployment rate by about 0.7 pp as compared to the model with homogeneous and unbiased beliefs.