The allocation after an unanticipated event (often called an "MIT shock") is different from the allocation of a corresponding complete-market model that explicitly considers the possibility of the shock, even when the probability of the event approaches zero.

We create a novel measure of job search effort starting in 1994 by exploiting the overlap between the Current Population Survey and the American Time Use Survey. We examine the cyclical behavior of aggregate job search effort using time series and cross-state variation and find that it is...