Can Workers' Increased Pessimism about the Labor Market Conditions Raise Unemployment?

As there is evidence on persistent heterogeneity in unemployment expectations across workers, it is a reasonable premise that the expected cost of job loss and the provision of effort on the job are also heterogeneous across workers. Based on such premise, we show that the positive correlation between pessimistic unemployment expectations and actual unemployment which is observed with survey data can arise in a heterogeneous expectations-augmented efficiency wage model through a composition effect which is empirically testable.