Agency and Workplace Diversity: Evidence from a Two-Sided Audit
103 Pages Posted: 21 May 2020 Last revised: 3 Nov 2020
Date Written: April 25, 2020
Whose preferences drive labor market sorting? We present a simple model of hiring that illustrates the role of intermediaries, worker preferences and employer preferences. These factors are unaccounted for in traditional resume audit studies, leading to ambiguity about interpretation. We introduce a novel field experimental paradigm (a "two-sided audit") to strengthen audit methodology. Our experimental paradigm allows researchers to measure key theoretical mechanisms, to improve statistical power, to address ethical critiques of audit studies, and to estimate the effects of employer policy changes. We then execute a two-sided audit study based on our theory model. Our design uses a prominent modern labor market intermediary (the recruitment process outsourcing industry) to create demand-side variation and to collect additional candidate outcomes. Our findings highlight the role of agency problems and intermediary incentives, which shape the distribution of workers' bargaining power. Career concerns lead recruiters to misallocate callbacks by catering to demand-side preferences for alumni of big companies and elite schools. These candidates are subject to lower standards of mutual interest and are thus "over-interviewed" relative to their probability of joining the firm. By granting more outside offers compared to the likelihood of joining, recruiters' career concerns change the distribution of candidates' negotiating leverage with employers.
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