Working Paper: CEPR ID: DP6837
Authors: Jens Josephson; Joel Shapiro
Abstract: Interviewing in professional labour markets is a costly process for firms. Moreover, poor screening can have a persistent negative impact on firms' bottom lines and candidates' careers. In a simple dynamic model where firms can pay a cost to interview applicants who have private information about their own ability, potentially large inefficiencies arise from information-based unemployment, where able workers are rejected by firms because of their lack of offers in previous interviews. This effect may make the market less efficient than random matching. We show that the first best can be achieved using either a mechanism with transfers or one without transfers.
Keywords: asymmetric information; decentralized labour markets; interview costs; matching; professional labour markets
JEL Codes: D82; J21; J44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interview costs (J32) | inefficiencies in the hiring process (J63) |
| inefficiencies in the hiring process (J63) | information-based unemployment (J64) |
| applicant's type (ability) (C52) | firm's decision to interview (M51) |
| firm's decision to interview (M51) | capable applicants remain unemployed (J68) |
| random matching (C78) | better outcomes than structured interview process (C52) |
| market design (D40) | mitigate inefficiencies (D61) |
| mechanisms (D47) | achieve efficient matching without incurring interview costs (C78) |