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Sorting through Cheap Talk: Theory and Evidence from a Labor Market

Author

Listed:
  • Horton, John J.
  • Johari, Ramesh
  • Kircher, Philipp

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

In a labor market model with cheap talk, employers can send messages about their will- ingness to pay for higher-ability workers, which job-seekers can use to direct their search and tailor their wage bid. Introducing such messages leads—under certain conditions— to an informative separating equilibrium that affects the number of applications, types of applications, and wage bids across firms. This model is used to interpret an experiment conducted in a large online labor market: employers were given the opportunity to state their relative willingness to pay for more experienced workers, and workers can easily condition their search on this information. Preferences were collected for all employers but only treated employers had their signal revealed to job-seekers. In response to revelation of the cheap talk signal, job-seekers targeted their applications to employers of the right “type,” and they tailored their wage bids, affecting who was matched to whom and at what wage. The treatment increased measures of match quality through better sorting, illustrating the power of cheap talk for talent matching.

Suggested Citation

  • Horton, John J. & Johari, Ramesh & Kircher, Philipp, 2024. "Sorting through Cheap Talk: Theory and Evidence from a Labor Market," LIDAM Discussion Papers CORE 2024013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2024013
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    References listed on IDEAS

    as
    1. Bhole, Monica & Fradkin, Andrey & Horton, John, 2021. "Information About Vacancy Competition Redirects Job Search," SocArXiv p82fk, Center for Open Science.
    2. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
    3. Laura K. Gee, 2019. "The More You Know: Information Effects on Job Application Rates in a Large Field Experiment," Management Science, INFORMS, vol. 67(5), pages 2077-2094, May.
    4. Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, September.
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    Cited by:

    1. Richard Audoly & Manudeep Bhuller & Tore Adam Reiremo, 2024. "The Pay and Non-Pay Content of Job Ads," Staff Reports 1124, Federal Reserve Bank of New York.

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