Finding any new job takes time and resources. Finding the right job is especially difficult. For workers and employers alike, it is costly to determine whether they will strike a good match regarding pay, location, schedule, skills, work environment, and so on. These costs hamper not only individual workers and businesses but also the wider economy. The greater the amount of search friction, the greater the extent of mismatch across the job market and the less efficiently labor is used throughout the economy, raising unemployment and lowering labor productivity.
An exception to this problem occurs when a worker is rehired by the same firm for which he or she worked before. For example, when a manufacturing plant is closed for retooling, as automakers typically do for a couple weeks in July, workers are let go temporarily and are rehired when the re-tooling is completed. In such cases, workers and firms know in advance what to expect from each other, and thus the usual problem of mismatch, which represents the difficulty of forming a new employment relationship, becomes moot.
This article appeared in the Third Quarter 2016 edition of Economic Insights. Download and read the full issue.