Barriers to Search and Hiring in Urban Labour Markets

This VoxDevLit summarises evidence documenting the labour market barriers faced by urban jobseekers and firms in low and lower-middle income countries, highlighting the role of information frictions on both sides of the market; jobseekers’ monetary and psychological search costs; jobseekers’ limited networks; and recruitment costs for firms. We also evaluate the impacts of a wide set of interventions designed to address these barriers. We find a fairly strong positive evidence base for interventions that provide information about worker skills, both to firms and to workers. There is also evidence that interventions relieving search costs can boost employment for populations that are liquidity-constrained and with realistic job targets, but effects may not persist. There is mixed evidence on interventions altering jobseekers’ beliefs, encouraging jobseekers’ use of job platforms and altering firms’ recruitment strategies. There is limited evidence on interventions targeting other constraints, such as psychological costs of search or limited networks, and generally less evidence on frictions facing firms than those facing workers. Existing evaluations are generally not informative on (i) displacement effects (i.e. negative employment effects for untreated workers), and (ii) general equilibrium effects that would only materialise when interventions are offered at scale. Evidence suggests search barriers may differ by gender but we have very little evidence showing how job-search policies could be adapted to address this issue.

Every year, hundreds of millions of people around the world search for a job, while millions of firms look for new recruits. Here are the key takeaways from evidence documenting the labour market barriers faced by urban jobseekers and firms in low and lower-middle income countries, and evaluating the impacts of a wide set of interventions designed to address these barriers.

Key takeaways for labour market policies

On constraints faced by jobseekers:

1. Well-designed interventions that provide information about worker skills consistently improve labour market outcomes, with benefits lasting up to four years after treatment. Average treatment effects are close to a 3 percentage point gain in employment, almost half of the average treatment effect on employment of vocational training for youth (Ghisletta et al. 2021). This is a striking finding, given that the typical skill-information intervention is more than ten times cheaper than the typical training intervention (McKenzie 2017).
   • These benefits arise from firms having better information about workers. Benefits also arise from workers having better information about their own skills and targeting search to jobs that suit them better, but interventions that provide information that cannot be easily conveyed to firms have weaker treatment effects.
2. Relieving jobseekers’ monetary search costs can improve labour market outcomes in the short run, but has failed to generate employment gains for populations that target out-of-reach jobs and for populations who have sufficient resources to fund job search in the absence of any intervention. Gains may not persist.
3. While the evidence base is small, there is potential for interventions reducing the psychological costs of job search to increase search effort or efficacy. Psychological interventions have increased labour supply, improved small business performance and reduced days unable to work due to poor mental health, outcomes which may behave similarly to job search effort.
4. The evidence base is currently mixed on encouraging use of job search platforms as a policy intervention. The more promising interventions have provided training on how to use platforms effectively rather than just encouraging greater use.
5. There is good evidence that individuals have biased beliefs about market fundamentals (e.g. the relevant distribution of wages), that beliefs affect job search behaviour, and that beliefs change in response to new information. However, interventions that provide information about these fundamentals or that provide jobseekers with greater exposure to the labour market to facilitate information acquisition have nuanced and often surprising impacts on outcomes. These interventions have so far failed to systematically generate improvements in labour market outcomes.
6. Jobseekers’ networks play an important role in their labour market outcomes. Interventions can both build networks, with positive effects on labour market outcomes, and encourage jobseekers to withdraw from informal networks. But there is very little evidence on how encouraging particular behaviours in relation to jobseekers’ networks affects labour market outcomes.
7. Existing evaluations are generally not informative on (i) displacement effects (i.e. negative employment effects for untreated workers), and (ii) general equilibrium effects that would only materialise when interventions are offered at scale. 

On constraints faced by firms:

1. Several studies suggest that limited information on worker experience, skills and trustworthiness can indeed limit hiring and are promising targets for intervention, with a now-substantial evidence base. Furthermore, the impacts of information and other interventions may be muted if they are not combined with complementary treatments that address other constraints.
2. While there is some evidence to suggest that firms do not optimise recruitment strategies and efforts, likely due to limited experimentation with different recruitment methods, the evidence does not currently establish that this limits the quantity or likelihood of hiring. However, it could still be that the lack of experimentation with recruitment technologies may influence the quality of hired workers and worker turnover. More work is needed to understand the implications of hiring costs in different settings.

Search barriers may differ by gender. Evidence suggests women may value different job attributes to men and find it difficult to find jobs matching these preferences. Employers often discriminate against women. Women and men may search for work differently, meaning that they experience search frictions in distinct ways. And there is some evidence that all these search barriers lead to women who report wanting to work opting out of active search. Unfortunately, we have very little evidence showing how job-search policies could be adapted to best meet these constraints. We thus flag this as an important area to make progress.

Barriers to Search and Hiring in Urban Labour Markets: Presentation of key takeaways

For our launch event, Stefano Caria and Kate Orkin joined us to present the key takeaways from this VoxDevLit, highlighting policy relevant results from recent economic research on urban labour market barriers.

References

Ghisletta, A, J Stöterau, and J Kemper (2021), “The Impact of Vocational Training Interventions on Youth Labor Market Outcomes: A Meta-Analysis,” Working Paper.

McKenzie, D (2017), “How Effective Are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence,” The World Bank Research Observer, 32(2): 127–154.