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Externalities in Recruiting

  • Matthias Kräkel

    ()

  • Frauke Lammers

    ()

  • Nora Szech

    ()

According to the previous literature on hiring, ?rms face a trade-off when deciding on external recruiting: From an incentive perspective, external recruiting is harmful since admission of external candidates reduces internal workers’ career incentives. However, if external workers have high abilities hiring from outside is bene?cial to improve job assignment. In our model, external workers do not have superior abilities. We show that external hiring can be pro?table from a pure incentive perspective. By opening its career system, a ?rm decreases the incentives of its low-ability workers. The incentives of high-ability workers can increase from a homogenization of the pool of applicants. Whenever this effect dominates, a ?rm prefers to admit external applicants. If vacancies arise simultaneously, ?rms face a coordination problem when setting wages. If ?rms serve the same product market, weaker ?rms use external recruiting and their wage policy to offset their competitive disadvantage.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse02_2011.

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Length: 46
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:bon:bonedp:bgse02_2011
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Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

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Web page: http://www.bgse.uni-bonn.de

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