Barriers to Search and Hiring in Urban Labour Markets

Limited information about skills and search strategies

The barrier 

After finding a suitable vacancy, jobseekers need to convince recruiters of their employability. Being able to convey credible information about one’s talents and skills is thus essential to secure a job. Unfortunately, however, credential and certification systems are often under-developed in low and lower-middle-income countries. Furthermore, for groups that have limited labour market experience, references from former employers — a key tool to signal ability in many labour markets — are unavailable. In this section, we explore a number of interventions designed to equip jobseekers with better signals about skills. We also discuss other types of interventions — e.g. search platforms and mentors — that may similarly help individuals increase the effectiveness of their job search.

Interventions providing information on jobseekers’ skills

A number of studies show that providing signals of jobseekers skills through certificates can improve jobseekers’ outcomes in the labour market. Abebe et al. (2021a) find that a job application workshop and related skill certification for young people in Addis Ababa (i) increases the probability of formal work and open-ended-contract work without increasing search intensity, one year after treatment, and (ii) raises earnings four years after treatment by 25% compared to a control group. They contrast this to the more short-term effects of their transport subsidy treatment arm to suggest that the inability to signal skills is the dominant barrier in the long run. The certification intervention included: (i) a Raven test score, (ii) a test of reading ability, (iii) a test of mathematical ability, and (iv) a work sample test to capture non-cognitive skills related to the ability of completing a piece of work. Carranza et al. (2022) and Bassi and Nansamba (2022) (discussed below) also report positive labour market impacts from certification interventions. Carranza et al. (2022) certify six skills (communication, concept formation, focus, grit, numeracy and planning), while Bassi and Nansamba (2022) certify five soft skills (communication, willingness to help others, trustworthiness, creativity and attendance). 

Awards or reference letters can also convey information about jobseeker skills and thus improve jobseekers’ outcomes in the labour market. A recent RDD study in Colombia finds that individuals who narrowly win a government sponsored award have higher earnings for up to five years compared to nearly identical students who just failed to win the award (Busso et al. 2023). In South Africa, Abel et al. (2020) shows that encouraging individuals to obtain a reference letter from their former employers raises employment rates by 5.9 percentage points for women from a control mean of 11.7%, three months after treatment (in the pooled sample, effects on employment are sizable but insignificant). Finally, Banerjee and Chiplunkar (2023) show that information about jobseekers’ job preferences is also missing in India, and that providing this information to placement officers in a large training institute improves the quality of the matches that are created. 

Overall, Kreft (2023) uses meta-analytic methods to demonstrate that the expected effect of these information interventions is a three percentage point increase in employment — a reasonably confident posterior — while there is more uncertainty on the impacts on earnings. Given the low cost of these interventions — a point that we discuss in more detail in the final section of the review — these results suggest that interventions providing information about skills are highly cost effective. Additionally, the heterogeneity of effects across studies is found to be limited, so estimates are likely to be informative of treatment effects in other settings. Finally, the meta-analytic evidence suggests that these types of information interventions work particularly well for those from less-advantaged groups who enter the market with weaker signals.

Carranza et al. (2022) show that effects of certification reflect both firms learning about jobseekers’ skills and jobseekers learning about their own skills and changing search behaviour. They run two separate experiments, In an audit-style experiment, they submit applications on behalf of disadvantaged South African job seekers, randomising whether skill certificates with information on jobseekers’ skills are included. They find that employers are more likely to interview an applicant with a certificate, though these effects diminish when more applicants have certificates, consistent with firms acquiring more information about jobseekers’ skills from certificates. In an experiment with jobseekers, they randomly chose some participants to receive branded, “public” certificates that could be provided to employers and others to receive just information about their skills, but not in a form that could be provided to employers (without their names or any branding). Both certificates improved outcomes, but the public certificates, which could be shared with firms, improved employment rates, earnings, wages and job quality significantly more than the private information, available only to jobseekers, suggesting both sides of the market lacked relevant information about jobseekers’ skills. 

Bassi and Nansamba (2022) also study the effects of certification on firms and workers, focusing on soft skills. They invite firms and workers in Uganda to a matching workshop and randomly provide soft skills certificates to some firm-worker pairs. Treatment leads firm managers to update their beliefs positively about workers’ soft skills, with larger effects for higher-skilled workers and higher-ability managers. The treated higher-ability managers are then more likely to hire workers from the matching workshop. Treated jobseekers have higher expected earnings and employment probabilities. In their design, prospective employers receive the same information as jobseekers, so effects on actual labour market outcomes might reflect jobseeker- or firm-side learning. 

Kiss et al. (2023) further document how jobseekers having limited information about their skills distorts search behaviour. Using lab-in-the field measures of beliefs about skills and preferences over jobs requiring different skills with a similar sample to Carranza et al. (2022), they show that many jobseekers believe that their comparative advantage (CA) over different job-relevant skills is different to their CA measured in standardised skill assessments, where CA is defined as the skill in which the jobseeker ranks highest, relative to other jobseekers who have taken the same assessments. Giving jobseekers information about their assessment results shifts their beliefs toward their assessment results, and makes them more likely to apply to jobs that demand their skill CA. This does not shift their total search effort, and increases their earnings, even if they are not able to provide certification of their skills to firms. 

Interventions encouraging use of job search and matching platforms

Job search and matching platforms offer the prospect of greater information about the labour market, as well as cheap and fast job search, potentially both lowering search costs and improving jobseekers’ information about the labour market.

Several papers study the consequences of encouraging jobseekers to register on these platforms or use platforms more. A number of studies find null or negative effects on labour market outcomes. Kelley et al. (forthcoming) find that encouraging vocational training students in India to register on JobShikari reduces employment, which they attribute to rising reservation wages due to platform enrollment. Jones and Sen (2022) find minimal effects on employment or earnings of encouraging Mozambican vocational training graduates to use Biscate, a freelancing platform, and Emprego, a conventional platform for finding formal jobs, but they do find some suggestive evidence of benefits for women using the informal matching platform. Chakravorty et al. (2023) find that encouraging vocational training graduates in Bihar and Jharkhand to use a job matching platform had no impact on labour market outcomes, potentially because very few employers posted jobs on the platform. 

In contrast to these generally null or negative effects, Wheeler et al. (2022) find large positive effects of training participants in job readiness programmes in Johannesburg to use LinkedIn. The training curriculum explained how to register on the platform, create a profile, research jobs and employers, and submit applications. Employment rose for treated participants at the end of training and persisted for at least a year, with suggestive evidence this was driven by using the platform to research potential employers rather than make network connections or apply for jobs. Afridi et al. (2023) find that encouraging registration on HelpersNearMe can raise employment for married men in Delhi but not their wives, even though both spouses were encouraged to use the platform. They argue this reflects gender-specific expectations about appropriate work, potentially reinforced through women’s social networks. Field et al. (2023) find large effects on job search of encouraging greater use of a job search platform in Lahore, discussed in the section on psychological interventions to reduce search costs. 

Encouraging learning through networks

Research documents many ways jobseekers learn from and obtain work opportunities through each other. Alfonsi et al. (2022) show that matching graduating vocational students with older mentors leads to quicker transitions into employment and subsequently higher earnings. This appears driven by mentees’ learning general information about entry level jobs and employment dynamics, rather than learning about or getting referrals to specific employers. Beaman (2016) reviews earlier work documenting multiple ways networks can be used in job search: learning about labour market conditions, learning about specific jobs, and encouraging current employers to hire people in the employees’ networks (the last of which is covered in this review in the section on barriers to firm search). 

However, labour market interventions can have unanticipated side effects by reducing information sharing through networks. Caria et al. (forthcoming) show that many jobseekers in Addis Ababa are members of informal networks, in which they share information about specific vacancies as well as sharing the cost of transport for job search. When some jobseekers receive transport subsidies, they partly withdraw from these networks, leading to lower search effort for other jobseekers in the network and suggestive evidence of lower employment for some subsamples. This shows that information can flow through networks and that networks can shift in response to changes in search opportunities. 

Policy take-aways

Providing information on jobseekers’ skills

Providing information to jobseekers about their skills is likely to be a valuable policy intervention in different contexts and a cheap addition to existing job search assistance programmes. 

More evidence is needed to understand how to best collect this information, generating those signals that are most useful to firms and jobseekers, and minimising noise in test results. More evidence is also needed on how the provision of certificates can complement other interventions at both the firm and the jobseeker level, and how it changes labour market trajectories in the longer run (the study that has the longest follow-up currently estimates impacts four years after the intervention, while most studies have a shorter time frame). 

Finally, existing studies largely fail to document negative impacts for individuals who receive a negative signal. This may reflect the fact that certificates are used more for horizontal rather than vertical differentiation (e.g. see the discussion in Carranza et al. 2022). However, more evidence is needed to understand whether this would remain true in a world where certificate use is ubiquitous, and hence where jobseekers find it harder to conceal bad test results.

Encouraging use of job search and matching platforms

The evidence base is currently mixed on encouraging use of these platforms as a policy intervention. Differing results across settings may reflect differences in the underlying labour market conditions. But it might also suggest that simply encouraging platform use or registration is insufficient to facilitate effective use, and that slightly more training is required.[1]1. The curriculum studied by Wheeler et al. (2022) required only four hours but was more hands-on than some other studies that simply informed participants about the platforms or encouraged them to register.  And findings suggest that other barriers, such as social norms about work, may mean platforms only help specific groups of workers. Many questions remain open. For example, we understand little about the general equilibrium impacts of platform adoption and expansion in developing economies (a broader issue discussed in the last section), or about how jobseekers use platforms as part of a portfolio of search strategies. Given the reach of job search platforms and the low cost of using them to deliver interventions, more research is potentially high value.

A particularly promising direction may be moving beyond encouraging platform take-up to study how variation in the design of platforms affects jobseekers’ labour market outcomes. This idea has been explored more in high-income countries.[2]2. For example, several papers document that job application decisions are sensitive to the language used in job adverts or the inclusion of wage information (e.g. Belot et al. 2022a, He et al. 2023, Marinescu and Wolthoff 2020). Other work studies the design of systems to recommend specific vacancies to jobseekers (e.g. Altmann et al. 2022, Behaghel et al. 2020, Belot et al. 2019).  However, some of these interventions can require good existing data on which types of vacancies are best suited to jobseekers, which may be difficult to find in LMIC settings.

Learning through networks

Studies highlight that jobseekers’ networks play an important role in their labour market outcomes, and labour market interventions should consider effects on jobseekers’ networks in their design. Interventions can both build networks, with positive effects on labour market outcomes, and encourage jobseekers to withdraw from informal networks. There is very little evidence on how encouraging particular behaviours in relation to jobseekers’ networks affects labour market outcomes.

Limited information about the labour market

The barrier 

Multiple studies in developing economies find jobseekers’ beliefs about their probability of being employed and wages they would earn if employed are often very different, and generally higher than the average outcomes for jobseekers similar to them on observable characteristics, or than their own subsequent outcomes. Examples include Alfonsi et al. (2022) and Bandiera et al. (forthcoming) in Uganda, and Jones and Santos (2022) in Mozambique. At least part of the overly optimistic wage beliefs reflects overly optimistic beliefs about the probability of getting offers at “better” jobs, e.g. white-collar jobs in Addis Ababa in Ethiopia (Abebe et al. 2022), or jobs in city centres rather than outlying low-income areas in South Africa (Banerjee and Sequeira 2023).

Potential migrants also face imperfect information. However, they tend not to systematically overestimate their likely labour market outcomes: their beliefs about different labour market outcomes can be more optimistic or more pessimistic than average outcomes. Prospective migrant workers from Nepal overestimate their earnings in migrant destinations (Shrestha 2020), as do male prospective migrant workers from Tonga (McKenzie et al. 2013) and rural migrants to Dhaka (Bryan et al. 2014). In contrast, female prospective migrants’ expectations from Tonga match actual earnings (McKenzie et al. 2013), and rural Kenyans underestimate earnings in cities, potentially because migrants underreport their earnings to their relatives in rural areas (Baseler 2023). Beliefs about other labour market outcomes can also be overly optimistic or pessimistic: rural migrants to Dhaka on average found jobs slightly faster than they expected (Bryan et al. 2014). Prospective migrant workers from Nepal are also overly pessimistic about their mortality risk from migration (Shrestha 2020). Finally, information problems also vary over more versus less public attributes of jobs: migrant workers in Dhaka start in firms that post higher wages but have worse working conditions, then move over time to firms with better working conditions (Boudreau et al. forthcoming).

Theoretically, overly optimistic beliefs might increase or decrease the level of search effort relative to accurate beliefs. Abebe et al. (2022) show theoretically that the effect of labour market expectations on search effort can be non-monotonic when search outcomes are a discontinuous function of search effort. Kiss et al. (2023) show that expected returns to search, which might be closely tied to expected search outcomes, have a theoretically ambiguous effect on search effort. They either increase search effort by raising the marginal return to search effort, or decrease search effort because less effort is needed to reach the same expected outcome.

Interventions providing information about the labour market

A number of studies examine the effects of providing jobseekers with information about likely labour market outcomes on the beliefs, search behaviour and/or outcomes of participants in the labour market. 

Jobseekers

Information interventions can shift jobseekers’ beliefs about the labour market and, in some cases, change some search decisions and outcomes. Chakravorty et al. (2023) show that giving information about wages at potential jobs to vocational training students in India’s Bihar and Jharkhand provinces increases the probability that the students stay in their first post-training position. Other patterns in the data suggest this might reflect negative treatment effects on beliefs about labour market prospects. Jones and Santos (2022) study how graduating students from vocational training in Mozambique respond to information about the actual wage distributions earned by similar students in the recent past. Treated recipients update their wage expectations downwards, with larger updates for the smaller group whose baseline beliefs were pessimistic. While they do not estimate treatment effects on employment, they find a moderate negative association between earnings expectations and employment in cross-sectional data, suggesting individuals who were more open to revise beliefs downward – from initially optimistic levels – were also more likely to obtain employment. 

Specific features of online labour market platform design also influence jobseekers’ information sets during search, which can shift their search behaviour. Banfi and Villena-Roldan (2019) show that vacancies on a Chilean job board that explicitly post higher wages attract more applicants, with a smaller relationship for vacancies whose language implicitly suggests higher wages. Subramanian (2023) shows that Pakistani women’s online application decisions are sensitive to information about the gender composition of the workplace and supervisors, as well as primes about family expectations for women working.

Workers

Information also alters on-the-job search. Wu and Wang (2023) study how manufacturing workers in Addis Ababa respond to information about promotion prospects and wage growth in their current firm. Treated workers on average update their beliefs toward the information provided and those who update their beliefs upward are less likely to quit. Abel et al. (2022) show that workers in Mexico underestimate formal sector wage growth and that this might contribute to searching more for informal than formal sector jobs, even though the latter offer substantially higher earnings over time. 

Migrants

Migration decisions are also responsive to new information. Shrestha (2020) shows that giving information about earnings and mortality risks lowers expectations about both outcomes and leads to respectively lower and higher migration rates. Results are driven by workers without experience of migrant work, consistent with a learning interpretation. Beam (2016) shows that giving prospective migrants from Bulan in the Philippines information about prevailing wages and minimum qualifications in potential destinations increases individuals' expectations about the wages they could earn abroad, and also raises their reservation wages.

Interventions providing information through job fairs, matching or exposure to new labour markets

Job fairs

Researchers have also sought to match jobseekers to work opportunities and studied the effects of these interventions on jobseekers’ beliefs about the labour market. Abebe et al. (2022) show that facilitating interviews at a job fair in Addis Ababa in Ethiopia generates very few job offers, but increases subsequent job search, and increases employment for some subsets of jobseekers. They combine these results with a survey of similar jobseekers’ beliefs to argue this pattern arises because jobseekers are overly optimistic about their labour market prospects, lower their expectations in response to their experience at a job fair, and hence search more to get closer to their initial expectations. Bandiera et al. (forthcoming) study how jobseekers in Uganda react to a facilitated job application to a highly desirable job. For jobseekers already enrolled in vocational training, the job application outcomes are worse than expected, lowering their expectations about the job offer rate and wage distribution they face. But in contrast to the jobseekers in Abebe et al., they lower their search effort, leading them into lower-quality jobs. For jobseekers not enrolled in vocational training, the job application outcomes are in line with their expectations, leading to limited effects on search activity or outcomes. The two preceding papers imply contrasting belief-search relationships, which might reflect differences in the study contexts or the theoretical ambiguity highlighted above. 

Beam (2016) shows that inviting jobseekers to a job fair shifts them from self-employment into formal employment, but not at the firms who attended the job fair. Attendance increases the likelihood of searching outside the region and receiving a job offer outside the region. The increase in search outside the province is concentrated entirely among those who look for work through family or friends. While jobseekers’ beliefs are not measured, it is plausible that job fair attendance changes beliefs about returns to search outside the region and encourages respondents to broaden their search for work using their social network.

Exposure to new labour markets

Banerjee and Sequeira (2023) study belief updating in the context of a transport subsidy experiment in Johannesburg, South Africa, also covered in the search costs section. Treated jobseekers receive either cash transfers or transport subsidies, both labelled as job search subsidies. Both treatments lead to more search in the city centre where jobseekers would otherwise struggle to afford to travel and a decrease in initially overly optimistic expectations about earnings and the probability of getting a job near the city centre. Their average employment rate is unaffected. But some subgroups become more likely to both search and work in nearby jobs, rather than searching for jobs in the city centre. This suggests a process of learning during job search which shifts search behaviour.

In work currently in the field, Dean et al. (forthcoming) hypothesise that a major reason that individuals do not travel more within a city in search of jobs is because people don’t like going to unfamiliar places. They study people’s familiarity with different neighbourhoods and their willingness to accept offers to travel to different parts of the cities. They also test whether an assisted visit to an unfamiliar part of the city increases subsequent willingness to do a job in the same neighbourhood.

Information about labour market intermediaries

Migration agencies

Labour market intermediaries are an important feature of developing country labour markets. They may be particularly important for migrant workers, as many international migrants either choose or are required to use migration agencies. These agencies may simply assist with job search, but many have more comprehensive roles, charging substantial fees to manage large parts of the process of applying for jobs, applying for visas, travelling, and securing accommodation. There is scope for deeply imperfect information about these agencies because migration is a differentiated good, with many difficult-to-observe attributes, “purchased” relatively infrequently. Improving information about migration agencies might shift behaviour by both migrants and the agencies themselves. Bazzi et al. (2023) provide prospective migrants with ratings for migration agencies, based on past migrants’ experiences. This leads to lower migration rates, specifically with poorly-rated agencies, and subjectively better experiences for those who do migrate. The authors argue that this pattern arises because better information encourages prospective migrants to search for longer to find a highly-rated agency.[3]3. Such interventions can also improve behaviour of migration agencies. Fernando and Singh (2023) study a government programme in Sri Lanka to publicly rate migration agencies. In the two-year period after the rating programme was announced, but before ratings were publicly released, agencies did more to screen foreign employers and placed migrants in less abusive and better-paying jobs. 

Online gig work

Online gig work platforms offer the prospect of supplying labour directly from developing countries to high-income countries. Labour and trade economists have begun to study how these platforms operate (e.g. Agrawal et al. 2015), but there is less research on the consequences of this type of work for workers and labour markets in developing countries. If the quality of work opportunities differs between different intermediaries, providing jobseekers with information on this might be a promising channel for intervention.

Policy take-aways

Interventions providing information about the labour market

Overall, studies highlight the importance of jobseekers’ beliefs about labour market conditions in determining their search behaviour. Most labour market interventions will have effects on labour market outcomes in part by changing jobseekers’ beliefs, even if this isn’t the primary intention of the intervention. In particular, research highlights that labour market interventions can encourage changes in beliefs and search strategies which have unintended effects on jobseekers, decreasing employment rather than boosting it. The design of labour market interventions should consider how the language and framing used in interventions and the signals provided to jobseekers may change jobseekers’ search behaviour. Evaluations should capture changes in jobseekers’ beliefs as a result of interventions. 

Studies also show that jobseekers are often incorrect about average labour market outcomes. However, we caution against recommending interventions targeting jobseekers’ beliefs as part of labour market policy on the basis of current evidence, given a number of gaps in the existing evidence. First, most studies only follow jobseekers for a limited period and some do not examine the effects on labour market outcomes of changes in search behaviour. This prevents studies drawing conclusions about whether this information hurts or helps jobseekers’ progress in the labour market. While it is clear that jobseekers’ beliefs and behaviour change after they receive information about the labour market, it often remains unclear whether these changes are welfare-enhancing or whether their biased beliefs may have been second-best optimal, for example, because they provided much-needed motivation to search for work. 

Second, while it is possible to derive and provide jobseekers with information about the likely average returns to different job search strategies or types of work from labour market surveys, this information may not apply to them individually and is not necessarily causally identified. Fundamentally, it is difficult for researchers to identify areas where incorrect beliefs are causing suboptimal behaviour or “good” search strategies in these labour markets because of a lack of data, and hence to identify what information to provide to jobseekers. Such interventions have been possible in high-income countries, but rely on rich data which is not available in poor countries.[4]4. For example, several studies have given jobseekers information about the occupations or sectors where jobseekers similar to themselves have successfully searched, which have shifted search strategies and improved some labour market outcomes (Altman et al. 2022, Belot et al. 2019, 2022b).   These interventions rely on rich data on jobseekers’ skills and characteristics, matched to data on their job-to-job transitions, to enable recommendations on jobseeker search strategies. While the growth of labour market platforms may enable better data collection and such interventions in future, platforms do not capture off-platform search or hiring, a significant part of labour market activity. In our view, this is a less productive avenue for labour markets policy than some other interventions. 

Third, studies tend to examine changes in particular beliefs, such as about average wages, rather than studying jobseekers’ learning processes. Studying the joint determination of beliefs, search activity, and search outcomes and feedback loops between them is a promising direction for future work. For example, “news” about labour market prospects might initially shift search activities, hence shifting search outcomes and hence further shift beliefs about labour market prospects. Standard labour market surveys cannot easily capture this process, as they seldom collect data at a sufficiently high frequency to describe the co-evolution of beliefs and search. Mueller and Spinnewijn (2022) suggest measuring beliefs about “search primitives”, such as expected search outcomes conditional on different levels of search effort. Under appropriate assumptions, combining panel data on search effort and these types of expectations measures can allow researchers to describe both how jobseekers move along a belief-search curve and test if this curve shifts. Some patterns described in Abebe et al. (2022) and Bandiera et al. (forthcoming) are consistent with this idea. 

Labour market intermediaries

Interventions providing information on labour market intermediaries may be a promising target for intervention, given their prominent role in enabling jobseekers to navigate the labour market. However, much more research is needed in this area.

Search costs

The barrier

Finding a job is often a long process that entails different types of costs. Individuals have to gather information about open vacancies, apply to some of these vacancies, attend screening tests and job interviews, and finally make a decision on an offer. These different steps typically impose monetary, time-related and psychological costs. 

• First, meaningful monetary costs typically arise whenever individuals need to use public transport to reach employers, such as when information about vacancies is acquired by visiting firms directly or when interviews are in person. One study in Addis Ababa documents that median job-search expenditure among active jobseekers amounts to about 16% of total expenditure (see Table 3 below and Abebe et al. 2021a). Another in Johannesburg finds mean expenditure among those searching is 18% of total earnings for those who are employed (Carranza et al. 2022).
• Second, the time invested in job search can have a high opportunity cost, especially when individuals have access to informal income-generating opportunities which they have to give up in order to spend time searching for a stable, formal job.
• Third, job search can be stressful and frustrating. Jobseekers often receive many rejections before securing a job offer and face substantial uncertainty as to when they will receive their first offer. This likely imposes significant psychological costs.

Table 3: Job search behaviour and costs

Quantifying total search costs is challenging, as non-monetary costs cannot be measured reliably in a survey. To obviate this problem, Abebe et al. (2021b) offer a structural estimate of the total cost of applying for a clerical job in Addis Ababa for the population of individuals that called the employer to inquire about the position. They estimate that the average total application cost amounts to approximately 13.5% of the monthly wage offered for the position. Additionally, Abebe et al. (2021b) estimate that this cost is substantially heterogeneous across applicants.[6]6. Interestingly, structural estimates of search costs in the US and Hungary produce similar findings: the cost of additional search effort tends to be high on average, but also substantially heterogeneous across individuals (Paserman 2008, Della Vigna et al. 2017).  Interestingly, structural estimates of search costs in the US and Hungary produce similar findings: the cost of additional search effort tends to be high on average, but also substantially heterogeneous across individuals (Paserman 2008, Della Vigna et al. 2017).

The main implication of high job-search costs is that individuals exert less job-search effort than they would in a low-search-cost environment. This likely worsens the performance of the labour market in two important cases. First, when there are external benefits to job search, e.g. benefits to firms or benefits to society at large from employment. In this case, jobseekers do not fully internalise the returns from their efforts, and thus search less than what would be optimal from a social point of view. Second, when jobseekers are liquidity constrained. In this second case, jobseekers would find it optimal to invest more resources in job search, but cannot do so as they cannot raise the liquidity to finance the additional search. Importantly, the literature has provided initial evidence, which we describe below, of both external gains to firms and liquidity constraints.

Finally, it is important to note that the heterogeneity of search costs has an additional implication: these costs can generate inequality in labour market outcomes. Two equally talented individuals may have very different outcomes based on their differential ability to invest in job search. Abebe et al. (2021b) leverage a high-frequency survey to provide observational evidence on how the job finding rates of high-ability individuals differ by two proxies for their job search costs (distance from the city centre and savings).

Search cost subsidy interventions

The literature has explored two types of interventions designed to help individuals pay job search costs: conditional and unconditional subsidies. 

Conditional subsidies

Conditional subsidies have raised employment and employment quality in Ethiopia, but have not impacted labour market outcomes in South Africa. Both Franklin (2018) and Abebe et al. (2021a) evaluate a conditional job-search subsidy designed to help young individuals travel to the centre of Addis Ababa, where they can find information about job openings and visit firms. Treated youth can collect a small cash transfer equivalent to a public bus fare at a designated location in the centre of town, up to three times a week, for a limited number of weeks. The cash transfer thus works in practice as a reimbursement for the cost of reaching the centre of the city. Both papers find that the subsidy boosts job search among treated individuals. Most importantly, Franklin (2018) finds that, three months after treatment, this intervention leads to a (significant) gain in employment of 6.7 percentage points and an (insignificant) gain in open-ended-contract employment of 4.3 percentage points. Abebe et al. (2021a) find that, one year after treatment, this intervention leads to a (insignificant) gain in employment of 3.7 percentage points, and a (significant) gain in open-ended-contract employment of 3.3 percentage points. These gains, however, do not seem to persist for longer time frames: four years after treatment there are no detectable positive impacts from this intervention. In South Africa, on the other hand, a conditional subsidy that covered about 40 return trips from Soweto to Johannesburg Central Business District (CBD) boosted job search, but did not increase employment or employment quality (Banerjee and Sequeira 2023). A key reason for the lack of impact seems to be that this population held particularly optimistic beliefs about wages paid by jobs in the CBD. The intervention led to a correction of these beliefs and persuaded individuals to give up searching for CBD jobs.

Unconditional subsidies

Unconditional subsidies have increased employment and earnings among Syrian refugees in Jordan, but failed to do so among Jordanian nationals or in South Africa. Caria et al. (2023) study the impacts of a small unconditional cash transfer offered to Syrian refugees and Jordanian nationals to support job search costs. They find that, among Syrian refugees, the intervention increased job search, raised employment by a significant 3.6 percentage points and earnings by a significant 65%, four months after treatment. Among Jordanians cash did not activate job search and did not affect employment outcomes. Further, in a separate arm in their trial in South Africa, Banerjee and Sequeira (2023) find that an unconditional subsidy boosted job search, but not employment outcomes. Importantly, both of these interventions show that individuals increase job search in response to small unconditional transfers, which suggests that at least some individuals in these contexts search less than they would like due to liquidity constraints.[7]7. Conditional transfers are less informative about liquidity constraints due to the fact that they in effect force individuals to increase travel to the city centre (and hence decrease the effective price of job search) in order to collect the subsidy. We would expect a boost in job search in response to a conditional transfer even in the absence of liquidity constraints. On the contrary, small unconditional transfers do not change the price of job search and have only second-order income effects on expenditure. It is thus natural to interpret the fact that they increase job search as evidence that control individuals would like to invest more in job search, but do not do so for lack of liquidity.

Finally, Abebe et al. (2021b) demonstrate that a small monetary application subsidy increased the size and quality of the pool of applicants attracted by an employer in Addis Ababa. In this context, lowering application hurdles improved selection as the marginal jobseekers who were most discouraged by high application costs had higher-than-average ability — a surprising correlation driven by a dynamic selection mechanism.[8]8. Dynamic selection works in the following way: high-ability jobseekers who face lower application costs search harder, find jobs faster and thus stop searching earlier compared to jobseekers of similar ability who face higher application costs. Due to this, high-cost, high-ability individuals become progressively over-represented in the pool of jobseekers, generating a correlation between cost and ability.   Importantly, the intervention had a positive internal rate of return for the employer, suggesting that boosting job search among talented-but-constrained jobseekers can have positive external impacts on firms.

Psychological interventions

Reducing psychological costs of job search

The potential psychological costs of job search imply that psychological interventions to reduce these costs may increase search effort. Field et al. (2023) find large effects on job search of encouraging greater use of a job search platform in Lahore, Pakistan. Jobseekers are randomly assigned to learn about relevant vacancies by only SMS or SMS and a phone call. The phone call substantially increases job application rates, the marginal applications have roughly the same interview probability as inframarginal applications, and the increase in job search effort does not have negative spillover effects on other jobseekers. They argue this pattern arises because the phone call makes the application decision more passive and less active, lowering the psychological cost of initiating applications in a similar way to default “opt-in” settings on savings accounts (Dellavigna 2009). These results show that simple tweaks to platform design can substantially change job search, and potentially improve search outcomes.

Treating mental health disorders

Another strand of literature examines whether clinical treatments that treat mental ill-health may also affect the extent to which people supply labour to the market at all and how intensively they search. Mental health disorders are known to reduce the extent to which people fulfil their normal social and economic roles, and in particular make exerting effort and planning toward and executing of goals difficult (Edlund et al. 2018). Jobseekers with such disorders may face particularly high psychological costs of job search. 

Lund et al. (2023) run a systematic review and meta-analysis of all randomised controlled trials evaluating treatments for mental ill-health and measuring economic outcomes in LMICs. They find that, across nine interventions treating common mental disorders like depression with psychotherapy, treatment reduces days on which people are unable to work by 0.09 standard deviations. They also compile a pooled dataset of 8243 participants and use a 2SLS strategy to find that a one standard deviation improvement in depression increases days that people experiencing depression are able to work per month by a substantial 1.75 days (SE 0.78), or 46%. They can only assess impacts on outcomes already measured by multiple trials, so cannot examine impacts on job search directly, but their analysis suggests treating mental health disorders for those affected by them may affect economic measures of labour supply.

Few studies in economics have examined the effects of mental health treatments on job search. Angelucci and Bennett (forthcoming) find no effects of antidepressants and therapy for depression respectively on job search in India, and Bhat et al. (2022) and Fuhr et al. (2019) find that a therapy had no effect on job search hours or availability to take a job opportunity. However, Weobong et al. (2017) find that a therapy for depression led to a 0.15 standard deviation increase in job search hours per week and a nearly 0.2 standard deviation increase in availability to take a job. However, except for Angelucci and Bennett (forthcoming), all the studies are much smaller than economic studies powered to examine treatment effects on job search, suggesting at least some of them may be underpowered.

Psychological interventions to boost future orientation

A growing literature in behavioural development economics studies the effects of psychological interventions to reduce psychological barriers on behaviours requiring effort, particularly where gains may be far in the future and costs are incurred immediately. Interventions have not studied job search specifically, although job search is likely to be a good example of a behaviour requiring effort. However, these interventions have had strong positive effects on labour supply. 

Some papers find that psychological interventions to boost aspirations increase labour supply. Bernard et al. (2023) conduct an RCT in rural Ethiopia that seeks to change how people perceive their future opportunities using a video documentary on role model-like figures, and find that five years post-treatment, treated households had increased their labour supply by about 7% of the control mean, or nearly an hour a day across all adult household members. Orkin et al. (2023) conduct a similar intervention in Kenya as part of a multi-armed trial and find labour supply increases among the treated by 5%. 

Other studies find soft skills training interventions, to achieve greater self-efficacy, ambitious mindsets, delayed gratification and higher aspirations, improve small business performance. Campos et al. (2017) find that personal initiative training increases profits and business survival among small businesses in Togo. Treated firms also utilise more capital and labour inputs. Cecchi et al. (2022) find such a training course among dairy farmers in Bolivia increased the likelihood of producing milk in the last 3 days. Rojas Valdes et al. (2022) find that such training among borrowers from a microfinance lender in Mexico result in improved microenterprise performance and increased business employment and plans to hire. Such training has not been tested with jobseekers, but may plausibly increase job search effort.

Other studies train people using psychological techniques to encourage them to visualise the future. An imagery-based training with would-be entrepreneurs in Colombia led to improved business survival, but not labour demand (Ashraf et al. 2022). A visualisation intervention in Kenya (John and Orkin 2022) not only increased the targeted preventative health investment in Kenya, but also had a highly significant positive effect on hours worked after three years, with individuals working 2.4 more hours (an 18% increase).

Policy take-aways

Overall, the evidence suggests that, for jobseekers, well-targeted search-cost subsidies have the potential to improve labour market outcomes in the short run. However, it is unclear that gains persist. The South Africa study further highlights that subsidies are not effective when jobseekers initially target out-of-reach jobs. Further, the Jordan study highlights that for some populations of better-off jobseekers search costs are not an important barrier to search. Subsidies can, however, have positive external benefits for firms, who would otherwise miss out on the talents of the most constrained jobseekers. Further, jobseekers also boost job search expenditure when they receive unconditional cash, suggesting that they would like to search more intensely than they currently are. 

More research is needed on the long-term and the equilibrium impacts of these policies. Furthermore, it is unclear how search-cost subsidies interact with the information interventions described in the next section, and in particular whether the two sets of policies would complement or substitute one another.

There is limited evidence on the effects of interventions to reduce the psychological costs of job search. However, some initial results from studies to encourage job search directly, as part of labour market interventions, suggest future research may be promising. Similarly, psychological interventions to boost aspirations, self-efficacy, or ability to visualise the future have led to large and sustained effects on labour supply, suggesting they may also encourage job search.

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