Monthly Archives: February 2017

Phantoms on the labor market

Having trouble finding a job? Blame the phantoms.

If you ever spent some time looking for a job online, you have most likely stumbled upon a listing for a position that has already been filled, and most people would agree that it is very annoying. In their recent paper, Bruno Decreuse and Arnaud Chéron call these job listings phantoms. It is not hard to imagine how phantoms directly create inefficiency in the labor market. Job seekers who apply to phantom listings lose their time by calling and employers who leave their ads online even after they have filled the advertised position lose their time by responding to job seekers and explaining them that the position has already been filled. Yet, many employers just leave their phantoms out there. The authors estimate that around 37% of job listings on Craigslist (a major job board in the US) advertise for already filled vacancies.

There are several reasons why employers may leave phantom job listings online: keeping active ads is usually free on websites such as Craigslist and deleting ads takes time and is thus costly in itself. Another reason is that some firms and state-run agencies are legally obliged to publish job listings despite already knowing who they will hire. Further, some employers may choose to keep outdated job listings as insurance until the new hire has started working. It is not easy to identify the presence of phantoms, but the authors found a way – the table below shows the average age (in days) of job listings in 23 major US cities. The maximum age of a job posting is 30 days, after which Craigslist automatically deletes it. The authors argue that if outdated ads were destroyed by employers, the density of job listings by age would be decreasing, and the quartiles of the distribution would be separated by an increasing number of days. However, as the table shows, this is not the case.

The authors then develop an extended version of the canonical continuous-time equilibrium search unemployment model by embedding a matching technology that permits the existence of phantom job listings. This model allows them to analyze the consequences of this particular market friction. They conclude that in the long run, there exists a unique steady state ensured by two mechanisms working against each other. When firms expect the matching process to be very efficient, they have strong incentive to post vacancies. This reduces the proportion of phantom job listings. Then this phantom proportion grows, and there is a reversal in the supply of vacancies, which ultimately determines the steady state.


Cheron, A., & Decreuse, B. (2016). Matching with phantoms. The Review of Economic Studies, rdw032. Available here.

The case for basic income guarantee

Unconditional hand-outs make more sense than you think, even from the libertarian perspective.

The notion of basic income guarantee (BIG) for every citizen has been discussed for some time. Although the idea is getting momentum and is even being tested in some countries (Finland, the Netherlands, or Canada), it is often viewed rather as a utopian dream of leftist economists. However, it is not just the egalitarian part of BIG which appeals to many in the economic profession and beyond, it is also the political economy bringing support from the right. Even Mike Munger from Duke University, a libertarian candidate for governor and member of Cato Institute, recently expressed his support for BIG.

As one might guess, the praise of the unconditional income coming from the classical liberal scholars is based on two pillars: individual incentives and market distortions. The current welfare system sometimes disincentivizes people to provide for themselves. For many government programs, people are eligible only if they earn less than a certain level of income. Crossing this threshold means the marginal tax rate is larger than 100 percent. There is no reason for people in such a situation to look for any incremental source of income.

One example of such policy are disability benefits. Although working conditions gradually improve in all sectors of the economy, more and more people are eligible for disability benefits. This increase can be tracked to regions with former presence of heavy industry. Data shows that disability benefits in fact serve as a transfer from the prosperous regions to those negatively affected by advancing technology and trade. Without judging the necessity, form or magnitude of the transfers, it is clear that policies which disincentivize work are among the worst ways to help lagging regions. BIG would solve this incentive problem and would thus be a viable substitution of disability benefits and related welfare programs trying to cope with such global dynamics.

The other perk of BIG is that it creates minimal distortions in the economy. Unconditional income is essentially a negative head tax. Although not acceptable from a social point of view, head tax has been identified as the most efficient form of taxation. It hardly affects prices and hence keeps the information flow in the economy intact causing virtually no market distortions. Thanks to BIG, it would be also possible to scrap policies such as minimum wage or unemployment benefits. Young workers would be able to gain their first job experiences disregarding their productivity relative that associated with the minimum wage.

Does BIG have any downsides, any obstacles preventing its implementation? It surely does, but those will be addressed in the next article. Until then, hurray for the BIG!

Reference: Munger, W. C. (2015). One and One-Half Cheers for a Basic-Income Guarantee. Independent Review, 19(4). Available here