High unemployment and high turnover are the two major issues in the urban context of developing countries. This is partly due to poor job matching between applicants and job vacancies. As companies prefer to hire more qualified workers, these tend to quit sooner rather than later for better alternatives elsewhere. An expanding industry, recruitment agencies, has the potential to address this matching friction. The researcher will thus investigate the impact of these agencies on job matching by carrying out a randomised control trial in Ethiopia. The experiment assigns a recruitment agency to a randomly selected sample of SMEs that are in the process of hiring workers. Two research questions are investigated: i) Do recruitment agencies improve firms’ hiring outcomes? ii) Do recruitment agencies decrease matching friction? The project aims to contribute to the growing literature on labour market intermediaries and job matching frictions.
A survey will first establish which firms are formally operating and are planning to post a vacancy within one month. The researcher will then carry out a random selection through a two-stage clustered sample design: the first stage samples the business districts in Addis Ababa, while the second stage samples the firms in the sampled districts that will get the treatment, i.e. being matched with a recruitment agency. A follow-up survey will gather application details and whether the vacancies have been filled out, as well as information on the turnover rate and performance of the new employees. To answer the first research question, the researcher will carry out a firm-level clustered regression to compare treated and control firms in terms of vacancy fill-out rate, turnover, and performance. To answer the second question, they will carry out an applicant-firm-level regression to look at the type of applicants treated firms are more likely to interview, accept and retain.
This project will allow local policymakers to address the problem of high turnover and unemployment rate by improving job market matching, as well as evaluate the efficiency of individual recruitment agencies. They will also be able to rely on a newly constructed dataset with applicant details for each vacancy and the final firms’ decisions. Moreover, an additional analysis will be able to examine whether firms present less discriminative hiring behaviour, for example according to sex or ethnicity, when matched with a recruitment agency that reduces matching frictions.
