Statistical Externalities and the Labour Market in the Digital Age
30 Pages Posted: 29 Jul 2015
Date Written: July 24, 2015
We examine whether a reduction in the cost of applying for jobs that leads to an increase in the number of candidates applying for jobs at a firm, may make the firm worse off. We build a model where there is worker heterogeneity and firms can choose to screen workers at a cost. In equilibrium, a reduction in application costs can lower a firm's payoff by raising the number of applications from workers who, on average, are of lower quality than those who apply when application costs are high. An additional candidate can impose a negative externality on the firm by adversely affecting the statistical quality of its candidate pool. We discuss applications to the phenomenon of attention congestion through advances in digital technology.
Keywords: job search, internet, matching models, attention congestion
JEL Classification: J60, J64, M51
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