Can workers' increased pessimism about the labor market conditions raise unemployment?

As there is extensive survey evidence on persistent heterogeneity in unemployment expectations across workers, it is a reasonable premise that the expected cost of job loss and the resulting provision of effort on the job are similarly heterogeneous across workers. Based on such a premise, the paper shows that the significant positive correlation between pessimistic unemployment expectations and actual unemployment which is consistently observed with household survey data can arise in a novel heterogeneous expectations-augmented efficiency wage modelling of the labor market through a composition effect. (AU)