Offer heterogeneity in the standard search model: Implications for the duration of unemployment and reemployment wages

The standard search model implies that both the hazard and reemployment wages should be unrelated to unemployment spell length. However, existing studies have found that the hazard from unemployment and reemployment wages decline with unemployment spell length. This paper uses heterogeneity in the offer arrival process to derive predictions that are consistent with the empirical evidence. A characterization of the rates of change of the hazard and the expected reemployment wage over time in terms of variances and covariances is obtained. A non-parametric test based on a model of two types is constructed and implemented on US data.