How Important Are Matching Frictions in the Labour Market? Experimental & Non-Experimental Evidence from a Large Indian Firm

Thursday, 30 August, 2018
Abstract: 
Banerjee and Chiplunkar (2018) provide evidence of substantial matching frictions in the labour market in India. In particular, placement officers in vocational training institutes have very little information about the job preferences of candidates they are trying to place in jobs. In the first part of this study, the authors adopt several alternative methods to elicit genuine preferences of candidates over different types of jobs and show that placement officers have poor knowledge of these preferences. In the second part, they provide placement officers with this information and examine its' impact on placement outcomes and employment. The authors find that placement officers come closer to efficiently matching candidates to job interview. Based on estimating a structural model of job preferences, they argue that there are net welfare gains because of better matching, not just redistribution within the group of potential employees. Furthermore, this leads to substantial improvement in job choices made by the candidates and subsequent employment outcomes for three to six months after initial placement.