Bad jobs

Abstract

We propose a definition of bad jobs and a competitive search model that addresses why workers seek such jobs, why employers create them and why market forces allow bad jobs to persist. The model features competitive search equilibria in which unemployed workers search for jobs that are unambiguously bad in a well defined sense. Concretely, these are jobs with suboptimal career prospects and jobs characterized by employers' underinvestment in labor. Our theory builds on the insight that when current employers can counter outside offers, potential employers who do not observe workers' productivity in their current job use wages as a signal of workers' willingness to switch jobs. In turn, this implies that the wage contracts that employers post in the market for unemployed workers not only direct job search but also signal career prospects. Bad jobs are a symptom of coordination failure stemming from a conflict between the signaling and allocative roles of wage contracts. Our analysis brings out potential difficulties inherent to the economics of bad jobs.