Overcoming Information Barriers to Firms Hiring Young, Inexperienced Work-Seekers

As a lack of information on worker and jobseeker skills may contribute to low firm productivity, this study aims to directly measure the consequences of improving information to employers about potential workers through twin randomized controlled trials. 

Firms’ success depends on identifying which employees will work productively for them, but they observe limited information about prospective employees’ hard skills, soft skills, and motivation. Faced with limited information, firms may hire the “wrong” workers, limit expansion, or adopt more capital-intensive production methods. The net effect is reduced firm output, firm productivity, and employment relative to a world of perfect information. To study this problem, the researchers will measure directly the consequences of providing employers with improved information about jobseekers’ skills.

The project will develop and pilot two randomized controlled trials—the first is a firm-level trial in which firms will be provided with portfolios of jobseekers whose skills have been independently assessed by a prominent South African assessment and placement agency. The researchers will test if treatment firms who receive the portfolios have different outcomes than control firms, as improved information may induce firms to hire more workers, hire workers with better-measured skills, raise labour productivity, and ultimately record higher profits. The second trial, run simultaneously, will provide treated jobseekers with personalized, publicly verifiable reports on their own skills that may be used in job application.

Limited information about workers’ and jobseekers’ skills may contribute to low firm productivity in development countries. This information friction interacts with policy in several ways, but can also be alleviated by policies that improve information on both sides of the labour market.  If this intervention succeeds, it can be expanded to other labour markets where limited information is a likely constraint to hiring and firm productivity, thus addressing a policy problem in low-income countries.