THEFORERUNNERSOFTHEJOBSEARCHTHEORY

ROBERT M. FEINBERG*

The job search literature of the past 15 years has generally cited
Stigler’s work (196 1, 1962)as the seminal research in this area. However,
it has not been widely acknowledged that the basic components of the
search theory - the view of unemployment as productive search, and
the importance of short-run disequilibria, imperfect (costly) information,
and uncertainty about employment opportunities in explaining unem-
ployment -were discussed by economists as early as the turn of
the century.’ This note will focus on these “forerunners” of the job search
theory and consider why the concept of search was not expressed
in a formal theoretical model prior to Stigler’s contributions, which have
stimulated the recent abundance of theoretical and empirical investiga-
tions of search unemployment. *
While the existence of unemployment, in the sense of the whole labor
force of a country never being exerted, was recognized as early as Adam
Smith, it is clear that most classical economists thought of the problem
as one of macroeconomics - not influenced in any important way by
individual motivations. The only mention Jevons (187 1) made of
unemployment was to deny the possibility of deficient aggregate demand
causing a decline in employment. Marshall ( 1890) minimized the
problem of unemployment and expressed the idea that what unemploy-
ment there was could be reduced by lowering real wages (through
lowered money wages) - no explanation was given for why this
adjustment did not occur. In later correspondence he explained a large
part of unemployment as “. . . caused by the existence of large numbers of
people, who will not or cannot work steadily or strongly enough to make
it possible that they should be employed regularly.” However, in

‘Assistant Professor of Economics, The Pennsylvania State University. The author thanks
Gordon Bergsten, William R. Johnson, Roger Sherman, John K. Whitaker, and the editor for their
comments on earlier drafts of this paper, without implicating them in any errors or omissions which
remain. Financial support is acknowledged from a doctoral dissertation grant from the US.
Department of Labor, Manpower Administration.
1. We identify job search with unemployment in this paper and consider anticipation of the
job search theory of unemployment. While Stigler’s work on search was not directly concerned with
unemployment, the literature which has since developed has come to be regarded as a 0 explanation
of unemployment. As such, we will not discuss those authors who wrote about price and wage
dispersion, and on imperfect information, but did not relate these factors to an individual’s labor
supply behavior.
2. For a survey of these studies see Lippman and McCall (1976). This note is not intended as
an exhaustive survey of the pre-search-theory unemployment literature. Rather, the authors
mentioned are seen as representative of other views of their time, the point being that these views
existed prior to the recent work on job search. Further, since the interest of this paper is in explana-
tions of unemployment based on individual motivations, much of the macroeconomic literature
on unemployment is not considered here.

126
Economic Inquiry
Val. XVI, Jan. 1978
 FEINBERG: FORERUNNERS OF JOB SEARCH THEORY 127

the same letter, Marshall recognized the influence of uncertainty on the

employment of labor:
For instance, the occasional unemployment of capable energetic
workers of all grades is ... due to the inability of beings of finite
intelligence to forecast coming economic needs and opportunities
with perfect precision.. .. (1903, p. 446).
The bulk of unemployment, though, continued to be thought of
by Marshall as concentrated in a particular group of people who,
symptomatic of a disease in society, were somehow unable to hold a
regular job.
Beveridge disputed this somewhat sociological view of unemployment,
and sought to identify the underlying economic causes for observed
unemployment.
Unemployment is not to be explained away as the idleness of the
unemployable. As little can it be treated as a collection of accidents
to individual work-people or individual firms. It is too wide-
spread and too enduring for that.. . . There are specific imperfections
of adjustment which are the economic causes of unemployment.
(1909, p. 12).
He presents a largely structuralist view of unemployment, the problem
being one of short-run maladjustments between labor supply and labor
demand within industries. While agreeing with the classical position that
forces are constantly at work adjusting labor demand and supply within
each industry in the long run, Beveridge stressed those forces which are
. constantly tending to disturb or prevent adjustment and having often
‘ I . .

a run long enough to determine the fate of individuals” (1909, p. 14).

Only in his later work did he acknowledge that unemployment could
result from chronic deficiency in the demand for labor. He looked back
to his thoughts in 1909:
On the facts up to that time, the assumption of economic theory that
demand in total could be left to look after itself appeared to
be justified in practice. As the supply of labour had grown, so on the
average had the demand for labour. With every pair of hands God
sends a mouth. (1945, p. 91).
Beveridge continued, however, to place great importance on
“frictions” in the labor market as a cause of unemployment. He
called for more and better information to be collected and spread on
demand conditions and for increased adaptability and mobility of the
labor force. More organized methods of matching job-seekers with
appropriate vacancies were “. . . the first step in the permanent solution
of the problem of unemployment” (1909, p. 198). It is interesting to note
that Beveridge was convinced that while there were economic factors
which could explain unemployment, there was no economic value to
128 ECONOMIC INQUIRY

being unemployed. Hence, less unemployment was always an improve-

ment in social, as well as individual, welfare. This view was shared by
Douglas, who noted that “. . . the economic productivity of this group of
workers [the unemployed] is nil” (1934, p. 85).
Pigou included in his definition of unemployment only involuntary
unemployment, while recognizing the difficulty in separating unemploy-
ment from voluntary “idleness.”
For, whether a man wishes to work or to be idle, and, if he wishes to
work much or little, are not questions to which absolute answers can
be given. Rather, the answers must depend on the rate of wage that
is to be obtained as a reward of working. (1913, p. 15).
Here, we see some recognition of a distribution of potential offers
facing the job-seeker, with the individual comparing the wage offer
“drawn” to some minimum acceptable level. Pigou also talked of
unemployment as a period of search for employment (1913, p. 22). And
yet, he ignored these aspects of search unemployment to conclude
that “. . . unemployment is wholly caused by maladjustment between
wage-rates and demand” (1913, p. S l ) , going so far as to claim that -
in theory - wage rates could be adjusted to eliminate all unemployment.
By 1933, Pigou had come to consider unemployment as caused by a
number of factors, including fluctuations in demand for various types
of labor. Some unemployment was seen to result from “. . . the fact that
changes in demand conditions are continually taking place and that
frictional resistances prevent the appropriate wage adjustments from
being made instantaneously” (1933, p. 252). Again, as in 1913, Pigou
hints at the concept of wage dispersion.
Fisher, in 1926, presented a statistical analysis which demonstrated
a strong correlation between price level changes and levels of unemploy-
ment - examining the Phillips curve 32 years before Phillips. However,
while interpreting the data to describe a causal relationship between
inflation and employment, Fisher’s explanation for this link failed
to consider individual worker motivations. Instead, he expected business-
men’s receipts to rise faster than expenses in inflationary periods;
this rise in profits would, at least initially, stimulate employment
( 1 926, p. 498).
Cannan, in a 1930 review of a book by Henry Clay, criticized Clay’s
failure to distinguish between two types of unemployment - called
“short-term” and “long-term” by Cannan. What Cannan referred to as
‘1
long-term unemployment” is the structural unemployment examined
by Beveridge; this problem of unemployment in “depressed industries”
was the primary focus of Clay’s work.
The duration of “short-term unemployment” was regarded by Cannan
as a variable which is largely under the control of the individual.
In particular, he suggested a positive correlation between unemployment
 FEINBERG: FORERUNNERS OF JOB SEARCH THEORY 129

insurance and the extent of short-term unemployment. While Clay noted

the impact of unemployment insurance on employers and trade unions,
“. .. he dismisses far too airily the influence of insurance on the mind of
the insured,” according to Cannan (1930, p. 46). In fact, Cannan comes
close to talking about a reservation, or minimum acceptable wage; the
unemployment insurance tends to raise wage aspirations and hence
lengthen the expected spell of unemployment.
. . . the insurance scheme has reduced the economic pressure which
used to make persons grab at every change of employment, take what
they could get regardless of every inconvenience, and stick to
what they had got regardless of every disagreeableness - which
made them, like the old British army, ‘ready to go anywhere and do
anything.’ (1930, pp. 46-47).
Douglas and Director conceded the tendency of unemployment
insurance to weaken the incentive to seek work, but claimed that proper
legislation and administration could solve this problem (1931, pp. 494-5).
Douglas (1934) chastised both the classical and neo-classical schools for
their cursory treatment of the problem of unemployment (mentioning
Marshall in particular). He pointed out that the marginal productivity
theory relied on perfect information by employers and potential
employees of an additional worker’s marginal product in any job
vacancy.3 Thus, the wage associated with any vacancy is also known
with certainty. However, in reality the worker’s knowledge of market
conditions is imperfect, and different employers, with varying estimates
of a worker’s marginal product, will offer a range of wages; somehow
this leads to unemployment, though Douglas did not establish a
satisfactory link.
Hicks not only explained the inevitability of unemployment, but
provided an economic motivation for search unemployment (as well as a
normative argument in support of the desirability of search unemploy-
ment). The types of frictions emphasized by Beveridge were seen by Hicks
as one cause of unemployment.
Some firms, then, will be dismissing, others taking on labour; and
when they are not situated close together, so that knowledge
of opportunities is imperfect and transference is attended by all the
difficulties of finding housing accommodation, and the uprooting
and transplanting of social ties, it is not surprising that an interval
of time elapses between dismissal and reengagement. during which
the workman is unemployed. (1932, p.45).

3. According to Douglas, the marginal productivity theory

. .. treated unemployment as resulting solely from the attempt of labor to secure a
higher wage than their product at the margin, and as only operating as the mechanism
by which the workers’ demands were forced down to the point where the employers
would be justified in hiring them. (1934, p. 70).
130 ECONOMIC INQUIRY

He further argued that a discussion of unemployment must consider both

the foresight, and the “. . . time and trouble required in making economic
adjustments” (1932, p. 58).
The motivation given by Hicks for why unemployment may be desired
by an individual is a simple one (and not claimed b j Hicks to be an
important case): a worker may quit his job to look for a better
one. Implicit in this case must be Alchian’s (1970) notion of differential
search costs; else, why would the worker want to become unemployed to
search? This “normal unemployment,” said Hicks, “. . . is voluntary and
raises no social problem” (1932, p: 45). Extending this argument would
imply that no social problem is caused by any search unemployment, for
a worker giving up his job to look for a better one is not conceptually
different from a job-seeker rejecting a wage offer to search for a
higher one. Of course, this argument ignores any external benefits or costs
associated with search, as well as putting aside questions concerning the
accuracy of the individual’s wage expectations.
Hicks did not stress the economic rationale for search unemployment;
this was left for Hutt (1939), an admittedly supply-side-only view
of various forms of “idleness,” including unemployment. His major point
could be considered an expansion of Hicks’ comment on voluntary
unemployment, the relatively simple notion that one might improve his
lot in the future by sacrificing present earnings and searching for
alternative employment. While not presenting a formal model of
job search, Hutt’s work provides the foundation for the job search
literature of the past 15 years.
Hutt regarded search for a better job as an investment in human capi-
tal, similar to education, where the addition to a worker’s ... future “

hire value . . . more than compensates for immediate earnings foregone”

( 1 939, p. 58).
Thus, a worker in a non-unionized and unprotected trade whose firm
closes down in depression may refuse immediately available work i n
a different job because he feels that to accept it will prevent him from
seeking for better openings in his own regular employment or other
occupations for which he is peculiarly fitted.. . . When actively
searching for work, the situation is that he is really investing
in himself by working on his own account without immediate
renumeration. He is prospecting.. . . he judges that the search for a
better opening is worth the risk of immediately foregone income.
(1939, pp. 59-60).
The problem of determining how much of observed unemployment is
productive was not ignored (though also not resolved) by Hutt - active
search for work “. . . is very difficult to distinguish in practice from the
various types of ‘preferred idleness”’ (1939, p. 60). He also talked of
“pseudo-idleness” in labor, when an individual increases his “long-run
expectations of earnings” by remaining available for profitable employ-
 FEINBERG: FORERUNNERS OF JOB SEARCH THEORY 131

ment rather than by accepting “supplementary employment.” Here,

mere waiting, not even search, may be profitable for the worker.4
Woytinsky (1942) found voluntary labor turnover to be an important
factor in the high pre-World War I turnover rate. And this voluntary
turnover was seen as productive from the workers’ point of view.
Workers who quit of their own will in the hope of finding better jobs
did not consider themselves as “unemployed” in the present sense of
the term. Few of them remained out of jobs for a long time, but if this
did occur they wrote off the loss of earnings as the price paid for a
chance to better their position. (1942, p. 3).
Thus, much earlier than Stigler, we find discussion of the costs
of search unemployment, the benefits from search, uncertainty (or risk)
in the labor market, and the importance of information. Why was no
further work done, at that time, towards a theory of search unemploy-
ment? A few possible reasons stand out: (1) Hutt and Woytinsky, while
recognizing the potential productivity of search, failed to see (or
emphasize) the existence of wage dispersion, which provides the incentive
for search, or spatial dispersion of vacancies, which necessitates search.
On the other hand, Beveridge, who seemed to recognize this spatial
separation of job opportunities, and Douglas, who pointed to the lack of
information about worker’s abilities (implying some wage dispersion),
denied any productive self-investment role in unemployment. It has only
been very recently that these crucial elements of the search theory have
all been joined together. (2) Hicks, Douglas, and Hutt, writing in the
context of the depression, may have felt that whatever role individual
motivations play in determining a “normal” or “natural” rate of
unemployment, these factors were dwarfed by macroeconomic consider-
ations in the 30’s. (3) The “Keynesian revolution,” with its emphasis
on aggregates, may have diverted the attention of economists from the
analysis of individual job-seeking behavior.
The economists mentioned above provided early explanations of the
rationality and, in some cases, efficiency of search unemployment.
However, they did not analyze systematically the factors which deter-
mine the extent of search or present formal models in which the
implications of changes in these factors could be studied; this was left
for Stigler and those who have continued research in the area of
job search.

4. Both Beveridge (1909) and Hicks (1932) had some discussion of “casual labor markets,” in
which there is some benefit to the individual from waiting for an employment opportunity to arrive.
132 ECONOMIC INQUIRY

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