Ineffiient Hiring in Entry-Level Labor Markets

Abstract

Hiring inexperienced workers generates information about their abilities. If this information is public, workers obtain its benefi ts. If workers cannot compensate firms for hiring them, fi rms will hire too few inexperienced workers. I hired 952 randomly-selected workers in an online labor market, giving them either a detailed or coarse public evaluation. Both hiring workers and providing more detailed evaluations substantially improved workers subsequent employment outcomes. These bene fits did not come solely at other workers' expense: the treatments increased overall market employment. Under plausible assumptions, the experiment's benefi ts exceeded its cost, suggesting that some experimental workers had been inefficiently unemployed.