Open Access Highly Accessed Original article

Notes on behavioral economics and labor market policy

Linda Babcock1, William J Congdon2, Lawrence F Katz3* and Sendhil Mullainathan4

Author Affiliations

1 H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, Pittsburgh, PA, 15213, USA

2 Brookings Institution, 1775 Massachusetts Avenue, NW, Washington, DC, 20036, USA

3 Department of Economics, Harvard University, Cambridge, MA, 02138, USA

4 Department of Economics, Harvard University, Cambridge, MA, 02138, USA

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IZA Journal of Labor Policy 2012, 1:2  doi:10.1186/2193-9004-1-2

Published: 9 October 2012

Abstract

Labor market policies succeed or fail at least in part depending on how well they reflect or account for behavioral responses. Insights from behavioral economics, which allow for realistic deviations from standard economic assumptions about behavior, have consequences for the design and functioning of labor market policies. We review key implications of behavioral economics related to procrastination, difficulties in dealing with complexity, and potentially biased labor market expectations for the design of selected labor market policies including unemployment compensation, employment services and job search assistance, and job training.

Keywords:
Behavioral economics; Unemployment insurance; Job training; Job search; JEL; D03; D04; J08; J24; J64; J65