University of Nebraska-Lincoln College of Business Administration

Private Returns to Public Investments in Job Search Assistance

Author(s): Jerry L. Kingston and Paul L. Burgess
Source: Nebraska Journal of Economics and Business, Vol. 14, No. 2 (Spring, 1975), pp. 45-55
Published by: University of Nebraska-Lincoln College of Business Administration
Stable URL: http://www.jstor.org/stable/40472526
Accessed: 13-05-2015 09:29 UTC
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PRIVATE RETURNS TO PUBLIC INVESTMENTS

IN JOB SEARCH ASSISTANCE*
JerryL. Kingston
Paul L. Burgess
AssociateProfessors
of Economics
ArizonaState University
in information
Investments
aboutlabormarketopportunities
constitute
an important
additionto thehumancapitalstocksof unemployed
workers.
The complementary
natureoftheseinvestments
withothertypesof human
and education)is suchthatincreased
capitalstocks(forexample,training
of
and
of
labor
market
and conditions
perception
knowledge
opportunities
the
rate
of
raise
return
on
the
human
total
maysignificantly
capitalstock
the
in
seeker.
the
absence
ofanyjob
Indeed,
job
possessedby
unemployed
searchactivities,
thelabormarketreturnto existinghumancapitalstocks
of theunemployed
wouldbe verylow.
The returnsto informational
investments
maytakeseveralforms.Reducedunemployment
for
a
duration,
givenreemployment
wagerate,lessens thetotalamountof earnings
the
forgoneduring periodofjob search.
for
a
of
earnAlternatively, givenperiod job search,totalreemployment
be
of
a
increased
because
ings may
higherreemployment
wage rate
obtainedthrough
a moreinformed
and comprehensive
search.
job
of
a
number
to
the
contributions
of optimal
significant
theory
Although
in
search
have
recent
little
job
appeared
years,1surprisingly empirical
evidenceon the returnsto investments
in labor marketinformation
has
been presented.As Alchianhas noted,however,the dissemination
and
of labormarketinformation
conforms
acquisition(thatis,theproduction)
to the conventional
lawsof productioncostsso thatindividualpurchases
*Workon this paper was supportedby the U.S. Departmentof Labor, Manpower
Administration,UnemploymentInsurance Service, under contracts UIS-72-4 and
contained in this paper,however,are
UIS-72-10. The statementsand interpretations
solely those of the authorsand do not necessarilyrepresentthe officialpositionsof
the U.S. Departmentof Labor or the State UnemploymentInsuranceAgenciesfrom
whichthe data were obtained.
See, for example, A. A. Alchian,"InformationCosts, Pricingand Resource Unemployment,"WesternEconomic Journal7, No. 2 (June, 1969), pp. 109-128; and
R. Gronau, "Informationand FrictionalUnemployment,"AmericanEconomic Review61, No. 3 (June, 1971), pp. 290-301.

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of (investmentsin) such informationnormallyoffer declining marginal

returnsas the stock of informationalhuman capital increases.2
Investmentsin labor marketinformationoffersocial as well as private
returns.In fact,as Stiglerhas noted:
The social capital is not necessarilyequal to the sum of
the private capitals. If most workerssearch intensively,
employerswho offerlow wage rates will be unable to
filltheirjobs and will be forced eitherto close down or
to raise wage rates- so if I enterthe labor marketand do
not search, I neverthelessprofitfromothers' knowledge
of the market.3
Furthermore,the social returnsto public informationalinvestmentsmay
take the form of improved efficiencyin the allocation of human capital
resourcesand reduced social discontent.Hence, public investmentsof this
type are characterizedby certainexternalitieswhich providea meaningful
basis for the production and disseminationof informationabout labor
marketopportunitiesand conditions by public agencies. In addition, because the disseminationof labor marketinformationmost likelyis subject
to decreasingmarginalcosts throughoutthe relevantrange,privateincensmall level of productionfroma social
tiveswould resultin an inefficiently
the
and
this
viewpoint,
strengthens justificationfor public provision of
information.Another potential basis for justifyingpublic provision of
informationis somewhat interrelatedwith the above justifications.The
appropriaterisk and uncertaintypremiumsforsociety may well be smaller
than the correspondingpremiumsfor an individualbecause of the law of
large numbers. This would be the case because the likelihood that a particularpiece of labor marketinformationwill benefita givenindividualis
much smallerthan the likelihood that it will benefitsomeone in the labor
marketas a whole.4
The impact of such publicly supportedinvestments,however,is likely
dependent upon the privatestocks of informationalhuman capital produced by the unemployed or by private firms.As will be explained in
greaterdetail below, it is hypothesizedthat the labor marketreturn(in
termsof reduced unemploymentduration)associated withpublic informational investmentsis likely to be much higherin labor marketsin which
the privateincentivesfor such investmentsare low (and hence the private
2

See Alchian,op. cit., pp. 110-111.

3G. Stigler,"Informationin the Labor Market,"Journalof Political Economy 70

(October, 1962, Supplement),p. 104.
See L. Thurow,Investmentin Human Capital (Belmont, California:Wadsworth
PublishingCo., 1970), pp. 30-35.

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humancapitalare low) thanin labormarketsin

stocksof informational
are high(and hencethe
forsuchinvestments
whichtheprivateincentives
human
are
the
informational
of
stocks
capital high).Furthermore,
private
in
investments
information
about
labor
market
motivationfor private
relatedto aggregate
is importantly
conditionsand opportunities
supplylabormarkets.
withinindividual
demandconditions
The mainpurposeof thispaperis to estimateone aspectof thelabor
marketreturnexperiencedby the unemployedas a resultof a publicly
and jobsponsoredprogramdesignedto providemarketinformation
the
A relatedobjectiveis to identify
assistanceto theunemployed.
finding
subsetsof theunempatternof responseto suchassistanceby alternative
factors:(1) sex, (2) age,
ployed,classifiedon the basis of the following
(5) lengthof residencein the
(3) ethnicgroup,(4) educationalattainment,
The impactof the
local labormarketarea,and (6) occupationalcategory.
thenumber
job searchassistanceis assessedbycomparing
publicly
provided
of weeksof unemployment
insurance
experienced
by unemployment
(UI)
who didor did notreceivethespecializedassistanceprovidedby
claimants
the Service-to-Claimants
an experimental
program(STC) project-that
was conductedduring1969-1970in Boston,Phoenix,and San FranciscoOakland.The projectwas undertaken
by local UI officesin thesecitiesat
of Labor,ManpowerAdministration,
therequestof the U.S. Department
InsuranceService.The data fromthisexperimental
proUnemployment
the
a
basis
for
this
same
useful
because,
analysis
although
provide
gram
specializedassistancewas providedto claimantsin each city,aggregate
and hence,as hypothesized,
theprivateincentives
labormarketconditionsin the
in labormarketinformationdiffered
forinvestments
considerably
areas.5
threemetropolitan
As backgroundfor the analysis,it is usefulto describebrieflythe
objectivesof thisexperimental
programand the natureof the informaassistanceprovided.The principleunderlying
the
tionaland job-finding
For a descriptionand evaluation of these experimentalprograms,see Paul L.
Burgessand JerryL. Kingston,The Phoenix Service-to-Claimants
Project, and The
San Francisco-OaklandService-to-Claimants
Project, and JerryL. Kingstonand Paul
L. Burgess,The Boston Service-to-Claimants
Project,U.S. Departmentof Labor, Manpower Administration,UnemploymentInsurance Service, Office of Actuarial and
Research Services,December, 1972. It is importantto emphasize that the objective
in this paper is not to conduct a benefit/costanalysisof the STC projectin termsof
the financialimplicationsof reduced insuredunemploymentrelativeto the costs of
providingthe labor market informationand the specialized job search assistance.
Rather, the emphasis is on the relativeimpact of essentiallyidentical public investmentsin the productionand disseminationof labor marketinformationto different
types of persons(classifiedby age, sex, and the like) and under differentaggregate
labor marketconditions.

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STC projectwas the beliefthat muchof the information

about each
claimantobtainedin the traditional
Ul claimsprocesscould be used to
renderadditionalassistancenot normally
providedto theclaimantin his
searchfor new employment.
The projectemphasizedthe provisionof
labor marketinformation,
information
on how and whereto
particularly
seek employment.
A realisticjob searchplan was developedfor each
claimanton thebasisof the following
factors:(1) supply-demand
conditionsin hisoccupationaland/orindustrial
category,
(2) hisapparentinterest in obtainingnewemployment,
(3) his educationand skilllevel,(4) his
condition
and
and (5) otherrelevantclaimantcharlimitations,
physical
acteristics(such as his socioeconomicbackground).To implement
this
a randomsampleof UI claimantswho werenot "job-attached"
program,
but who werebelievedto be "job-ready"wasselectedforparticipation
in
eachcity.6Thesepersonswerethenrandomly
dividedintotestand control
receivedthejob searchassistance.7The pergroups,and onlytheformer
sonaland labormarketcharacteristics
of the] 3,619 testand controlgroup
claimants
in Table 1. Eventhoughthereweredifanalyzedare presented
ferences
in theaggregate
labormarket
in thethreemetropolitan
conditions
of thegroupsselected
areas,thepersonaland labormarketcharacteristics
in eachcitywereroughly
similar.
The impactof the specializedassistanceprovidedto thosein the test
the meanUI claimseriesdurationof test
groupis assessedby comparing
vs. controlgrouppersonsin eachcity.8The levelof statistical
significance
associated with test vs. controlgroup differences
in these means is
Claimantsbelievedto need retraining
or intensivecounselingwereexcluded from
the project. Also excluded were those who were expected to returnto work in a
shorttime withoutjob searchassistancefromeitherthe UnemploymentInsuranceor
EmploymentServices(for example,those expectingrecallwithin30 days).
Althougheach of the claimantsincludedin thisprogramwas requiredto register
with the EmploymentService as a part of the traditionalprocessof UI claimsfiling,
persons in the test group received considerablymore extensiveand individualized
assistance.In addition to the provisionof informationabout the numberand types
of firmscurrentlyseekingemployees withinthe claimant'sindustrialand/oroccupational category,emphasiswas placed on the developmentof a realisticperceptionof
the labor marketopportunitiesavailable to the claimantand on the formulationof
an efficient
job searchplan.
It should be emphasizedthatunemploymentinsuranceclaim seriesduration,the
variableanalyzed in this article,is not identicalto unemploymentdurationformany
claimants.The recordedclaim seriesdurationfigurewould not be greaterbut could
be less than actual unemploymentduration.For a discussionof the distinctionbetween the two concepts,see JerryL. Kingstonand Paul L. Burgess,"Unemployment
Insurance,Job Search, and the Demand for Leisure: Comment," WesternEconomic
Review 9, No. 4 (December, 1971), pp. 447-448.

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t testsforthedifferences
determined
betweentwosample
byconventional
means.
EMPIRICAL RESULTS

The resultsforthetotaltestand controlgroupsindicatethatthejobassistanceprovidedto testgroupclaimantssignificantly

reduced
finding
theirclaimseriesduration,comparedwiththe durationof theircontrol
in two of the threecities(see Table 2). In Boston,
groupcounterparts,
meanclaimseriesdurationfortestgroupclaimantswas 16.8 weeksvs.
18.2 weeks forcontrolgroupclaimants;the difference
of 1.4 weeksis
at the.01 level.Similarly,
in SanFrancisco-Oakland,
statistically
significant
the difference
betweenthe total testand controlgroupmeansof 15.5
at the .05 level.In conweeksand 16.4 weeksis statistically
significant
trastwiththisevidenceof positiveprojecteffectiveness,
meanduration
forthe Phoenixtestand controlgroupswas nearlyidentical(8.4 weeks
vs.8.5 weeks,respectively).
of theseresultsis facilitatedby consideration
of the
Interpretation
in
labor
market
conditions
these
cities
the
aggregate
during projectperiod.
The averageunemployment
rate duringthe projectperiodwas only2.8
percentin Phoenix,comparedwith4.1 percentin Bostonand 4.6 percent
in San Francisco-Oakland.9
theunemployment
ratesin thelatter
Although
two citieswerenot highby historicalstandards,
it is important
to emthat
were
46
these
rates
and
64
phasize
actually percent
percenthigher,
thanthecomparable
ratein Phoenix.
respectively,
unemployment
is theintercity
Onlyin Bostonand San Francisco-Oakland
patternof
claim
effectiveness
in
series
duration
for
the
total
testvs.
project
reducing
withtheoretical
controlgroupsconsistent
These
theoretical
expectations.
considerations
suggestthat individualdecisions,based upon theprivate
in labor marketinformation,
benefitsand costs of investment
tend to
in information
resultin lessinvestment
and increased
search
duration
job
in "loose" (and deteriorating)
thanin "tight"labormarkets.
Accordingly,
thepublic provisionof labor marketinformation
would tendto havea
job searchdurationin labormarkets
greatermarginalimpactin reducing
in whichtheincentives
forprivateinvestment,
and hencetheprivatestocks
of information,
are lowerthanin labormarketsin whichthe privateinand hencetheprivatestocksof information,
arehigher.
centives,
The average,seasonally unadjustedunemploymentrate was computed for each
claimant's period of unemployment;the rate for each city reported in the text
representsthe mean of these individualunemploymentrates for the groupof claimantsanalyzed.

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Thereare at leastthreeseparatebut relatedreasonsforexpectingthis

in looseratherthanintight
intheprivate
stocksof information
differential
thatlabor marketinformation
aclabor markets.First,the probability
a
suitable
offer
within
a
will
job
actuallyproduce
givenperiodis
quired
the
rate
of
return
reduces
in
this
to investment
lessin loose labormarkets;
will
in
tend
to
a
and
thus
result
smallerprivate
labormarketinformation
and increasedjob searchdurationin such markets,
stockof information
ceterisparibus.10A secondreasonforreducedprivateincentiveto invest
in loose (and deteriorating)
in labor marketinformation
labormarketsis
morequicklyunderthese
thatthe valueof suchinformation
depreciates
in information,
a lowerstockof
conditions;thusless privateinvestment
to
and longerjob searchdurationtend result.The third
information,
extentof employerinvestment
in search
reasonrelatesto the differential
labor
and
the
markets,
activityin loose vs. tight
consequentimpacton the
In
the
willundertake
totalprivatestockof information.
former,
employers
in searchingforemployeesbecause,ceterisparibus,the
less investment
marginalbenefitsof searchare lower;hence,the total privatestockof
1
willbe lesson thisaccountin loose labormarkets.1
information
The threereasonsdiscussedabove suggestthatthe totalstockof labor
marketinformation
would be lower in loose (and deteriorating)
labor
considerations
markets
thanin tightones.Thesetheoretical
likelyaccount
of pubforthe reducedclaimseriesdurationreportedforthe recipients
liclyprovidedjob searchassistance(test grouppersons),comparedwith
in Bostonand San Francisco-Oakland.
theircontrolgroupcounterparts,
withthe nearlyidenticalmeanduration
Thesesamefactorsare consistent
valuesreportedforthe Phoenixtestand controlgroupssincethe private

10
It is importantto emphasize that a deteriorationin labor marketconditions
will tend to resultin increasedunemploymentduration,even thoughsuch conditions
also tend to result in decreased reservationwages; ceterisparibus,the latterwould
decrease unemploymentduration. Nevertheless,as Gronau notes [op. ciu> p. 295],
the decline in wage demands does not offsetcompletelythe slower rate of
"...
job offers,. . . and as a resulta decline inp [the rateof arrivalofjob offers]becomes
a major factor in the prolongationof search." In a related context, Alchian [op.
cit., p. 120] notes that unemployed workersonly reluctantlyreduce theirreservalabor marketconditions.
tion wagesduringa periodof deteriorating
11 Ullman
in
the Cost of Search forClericalWorkers,"
Differences
J.
["Interfirm
Journalof Business of the Universityof Chicago 41, No. 2 (April, 1968), p. 154]
notes that thereis a substantialbody of empiricalevidence to support this hypothesized relationshipbetweenthe unemploymentrate and employersearch activity.

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forinvestmentand hencethe privatestocksof informationincentives

werelikelyhighinthistightlabormarket.12
The analysisof alternative
subsetsof thetotaltestand controlgroups
in Bostonand San Francisco-Oakland
revealsthatthebenefitsof project
assistancewerenot uniformly
distributed
served.For
amongtheclaimants
assistance
did
not
reduce
claim
duraseries
example,project
significantly
tim in eithercityforfemales,workers
25-34
and
45
or
years older,
aged
in fourof theoccupationalcategories.
In contrast,
and workers
an interof
differential
is
that
the
assistancewas
projectimpact
estingpattern
effective
in reducingdurationforwhitesin bothcities,but not fornonwhites.13For the former,the difference
betweenthe testand control
means-16.8 vs. 18.2 weeksin Boston,and 15.3 vs. 16.4 weeksin San
is statistically
at the .01 levelin eachcase.
Francisco-Oaklandsignificant
In contrast,
thedifference
betweenthetestand controlgroupmeansfor
in eithercity.This differential
nonwhitesis not statistically
significant
impactcould indicatethat:(1) theservicesprovidedwerenotwellsuited
fornonwhites,
did notor couldnotutilizetheinformation
(2) nonwhites
and assistanceprovidedas effectively
as whites,perhapsbecause of job
marketdiscrimination,
and/or(3) the actual servicesprovidedto whites
andnonwhites
differed.
Basedupontheavailableinformation,
it is unlikely
that factor(3) was of any importance;it is not possible,however,to
determine
therelativeimportance
of theothertwofactors.
CONCLUSIONS
of thispaperare:
The primary
findings
in theproduction
and dissemination
of labor
(1) Publicinvestments
marketinformation
and otheraspectsof job searchassistancemayoffer
12It
should be noted that the generallyreduced unemploymentdurationof test
of test
vs. controlgroup personsis likelydue, at least in part,to the rearrangement
and controlgroup personswithinthe overalllabor marketqueue. If the shortermean
unemploymentduration of test group persons resultedmerelyfrom the more immediate access to existingjob vacancies by test group persons who received the
supplementarylabor marketinformation,the benefitof the specialized assistance
would be that existingjob vacancies are filledmorequickly. Otherthingsequal, this
would resultin a reductionin the overallunemploymentrate because of a reduction
in the averagedurationof job search by the frictionally
unemployed.Such an effect
is likely to resultfromany manpowerprogramin the absence of adequate job vacancies forall unemployedworkers.
Anotherpatternof consistentproject impact in thesetwo cities was foundfor
those in the 35-44 age category:personsof thisage in the testgrouphad significantly
reduced claim seriesduration,compared with theircontrolgroup counterparts.The
reasonsfor this patternof project impact,however,are not apparentfromthe data
availableforthisanalysis.

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durain termsof reducedunemployment

labormarketreturns,
important
on
of
returns
such
but
the
tion,
maydependimportantly the
magnitude
humancapitalprocuredby the
of
informational
stocks
existingprivate
unemployed.
(2) If aggregatelabor marketconditionsaffectthe incentivesfor
and hencethetotalhumancapitalstocks
investments
privateinformational
the marginalreturnsto publiclyprovidedlabor
of such information,
assistanceare likelyto be greaterin
and job-finding
marketinformation
thanin "tight"and stableones.
markets
labor
"loose" and deteriorating
withthishypothesis.
are
results
consistent
Theauthors'empirical
in whichpubliclysupportedinforma(3) In "loose" labor markets,
differare expectedto producehighermarginal
tionalinvestments
returns,
benefitsfromthese
dissimilar
entsubsetsof the unemployed
experienced
redurationwas significantly
For example,unemployment
investments.
duced forwhite,but not fornonwhite,
job seekers.The specificreasons
are not apparentfromthe data availableforthis
for such differences
analysis.

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