Theory of Job Seeking: A Proposal for Thailand

Professors Peter Diamond, Dale Montensen and Christopher Pizaridez, winners of 2010’s Nobel Prize in Economics, have developed a job seeking theory and developed labor market analysis tools to answer certain questions about the high rate of unemployment in the midst of major recruitment searches, while also analyzing the effect of economic policies on the unemployed.

The work of these three Nobel Prize economists answers key economics questions in general, clarifies factors affecting unemployment and its development, and is useful to unemployment policy formulation. The Theory of Job Seeking can be applied to the Theories of Finance, Public Economics, Regional Economics and the Theory of Family Economics, being applicable to other types of market analysis as well.

The core principle to the Theory of Job Seeking is that job seekers have high costs in their search for work due to the hiring process of employers being a matching process. Dissatisfaction with a candidate’s qualifications or unsuccessful wage agreements between employers and job seekers may result in a situation of no employment, and the need for continuous repetition of this process between employers and employees. Job seeking then takes a long time, despite there being many job vacancies as well as many unemployed workers. This phenomenon does not conform to the market mechanism view of classical economists who believe that “buyers and sellers can engage in immediate trade matches at no cost where complete information is available regarding goods and services price.” Additionally, resources will be most effectively used when the price is determined by the market mechanism which leads to equilibrium or a situation of no excess demand or remaining supply.

These three Nobel Prize economists have applied the Theory of Job Seeking to develop the Decision Making Process (DMP) model, which is a popular tool in analyzing unemployment, wage levels and job vacancies, including unemployment and its impacts due to other factors such as unemployment insurance benefits, real interest rates, job agency performance, the cost of labor supply, and others.

From the work of the three Nobel Prize economists mentioned above, I see that Thailand could benefit by applying this theory to its national labor policies and other public policies. I would therefore like to make a policy recommendation, as follows:

Signal a standard for products and services
Many problems exist for Thailand where labor market information is still imperfect. I always hear entrepreneurs complain that employers demand labor, but cannot find workers. One cause for this is that overall labor quality does not match labor requirements. In other cases, for example, the Real Estate market and the services market, buyers must be matched with sellers, or require specialized expertise in checking product and service quality before a buyer decides to trade costly goods, or a previously unseen product or service. Sometimes, however, information about employers and job seekers does not exist, or is inadequate.

I therefore propose that the Government set workers’ skill standards across various professions and establish an Institute that can test and certify standard skills, including skills used in the development of skill training courses, with support also provided for the private sector in skill training. Workers who pass a skill training test will be certified by a reliable well-known Institute where their name will be recorded on a database along with their work skill level and their contact information. Employers can then search this database, and in effect be sent a signal about the skills of every worker, thus causing the labor supply cost and the job seeking period to decrease, while also raising workers’ skill levels. Such concepts can also be applied in other markets, for example, when setting housing project standards, or certifying other service providers, etc.

Develop labor market analysis tools
Current labor policies, especially on minimum wage are a result of negotiations by the Tripartite Central Wage Committee. Although minimum wage guidelines specifically state that various committees considered the issue by looking at a variety of related factors, they did not have the necessary analytical tools to provide fine answers in a scientific way about appropriate wage rates and the impact of wage determination at different levels. Changes to social security benefits were also raised, especially regarding unemployment insurance that regularly correlates to political momentum rather than academic analysis. These processes may not be able to maximize benefits, either for workers or for the economy as a whole.

I propose that it is an essential necessity for the Ministry of Labor to develop appropriate tools to analyze the labor market, and especially to formulate economic models that can analyze the impacts from labor policies and other policies. You can read more about such ideas in an article I published on my website on December 11, 2005, "How to set the minimum wage for the most benefit."

Finally, my proposal on the Theory of Job Seeking is just one example of applying knowledge in order to resolve a problem and develop the country. In the past, one important factor driving the development process in many countries was that they could produce and apply knowledge to national development. Therefore, it seems a loss if we learn that such knowledge exists in the world, but we cannot apply it as a real concept in our own country.

Article published in “Daily News Online,” Friday 15th October 2010; Article Column: “Concepts of Dr Dan”.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com