published in: European Economic Review, 2010, 54 (2), 294-316
In this paper we develop a structural model for job search behavior of students entering the
labor market. The model includes endogenous search effort and on-the-job search. Since
students usually do not start a regular job before graduation but start job search earlier, our
model is non stationary even if all structural parameters are constant. The model explains the
common finding that a substantial share of individuals starts working immediately upon
graduation. We estimate the model using a unique data set of individuals who completed
undergraduate education in the Netherlands between 1995 and 2001. Our estimation results
show that a 1 percent point decrease in unemployment rate increases wage offers with 3
percent, that there are substantial returns to work experience and that individuals devote less
effort to job search than optimal. Employment rates at graduation could be increased from 40
percent to 65 percent if all individuals start job search 6 month prior to graduation.
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