Aggregate Implications of Employer Search and Recruiting Selection

Abstract

This paper develops a general equilibrium model of nonsequential employer search with recruiting selection and heterogeneous workers, and characterizes its equilibrium. I depart from the standard search model by allowing firms to simultaneously meet several applicants and choose the best candidate. Recruiting selection is important: firms interview a median of 5 applicants per vacancy and spend 2.5% of their total labor cost -about US$4200 per recruit-in these activities.The model provides an endogenous matching process with heterogeneous workers in which the hazard rate out of unemployment increases in productivity. The model also accounts for the empirical evidence of negative duration dependence of both hazard rates and re-employment wages. Under recruiting selection, lifetime inequality increases relative to the sequential search benchmark because low wage workers go through longer and more volatile unemployment spells, and have less valuable outside options to bargain with firms. I also show that stronger recruiting selection worsens the productivity of the unemployed and may not generate a more efficient job assignment at the aggregate level. Search frictions coupled with recruiting selection generate new kinds of externalities that affect not only transition probabilities, but also the expected productivity of recruited workers.The calibrated model can replicate moments of the distribution of wages and unemployment durations in CPS data. Using this parametrization, I also show that an increase of screening costs reduces inequality and productive efficiency, and decreases negative externalities on other employers.

Worker Selection, Hiring, and Vacancies

“…9 In other words, the decision for the optimal hiring standard is a solution to static problem given ∆. The LHS in (21) is strictly decreasing in p and is equal to 0 when p = 1. This term is the marginal benefit from increasing the hiring standard: as a firm increases the hiring standard, it avoids paying wages to the workers who are more likely to be unproductive in the next period.…”

“…On the one hand, existing worker selection models are not suitable for studying the cross-sectional properties of hires and vacancies, because they assume that firms either have a vacant position or are employed with only one worker. Mortensen and Pissarides (2001), Pries and Rogerson (2005), Villena-Roldan (2008) and Merkl and van Rens (2013) are examples of worker selection models of this kind. 2 On the other hand, extensions to the standard DMP model assume workers are identical and, therefore, imply that firms indiscriminately hire all the workers they match.…”

Firm Recruitment Behaviour: Sequential or Non‐sequential Search?

“…Another complication is that non‐sequential search on the part of firms may induce a new form of wage variation because firms, when bargaining over wages with the preferred applicant, will take the productivity level of the second‐best applicant in the pool into account. Hence, non‐sequential strategies generate macroeconomic implications that differ from the sequential search model ( Villena‐Roldán, , ). It has been suggested that, given firm non‐sequential search and multiple applications by job‐seekers, the hiring probability increases in the number of applications, but the overall hiring rate is decreasing because selection times increase.…”

The Contractionary Effect of Bad Economic News

“…The remaining more productive workers then face a lower probability of being terminated, regardless of how much bad news is printed. Recent theoretical papers have considered this possibility (Villena‐Roldan ). Alternatively, perhaps, once the media become saturated with negative articles, additional articles have little effect.…”