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Externalities in Recruiting

  • Kräkel, Matthias
  • Szech, Nora
  • Bieberstein, Frauke von

External recruiting at least weakly improves the quality of the pool of applicants, but the incentive implications are less clear. Using a contest model, this paper investigates the pure incentive effects of external recruiting. Our results show that if workers are heterogeneous, the opening of a firm’s career system may lead to a homogenization of the pool of contestants and, thus, encourage the firm’s high ability workers to exert more effort. If this positive effect outweighs the discouragement of low ability workers, the firm will benefit from external recruiting. If, however, the discouragement effect dominates the homogenization effect, the firm should disregard external recruiting. In addition, product market competition makes opening of the career system less attractive for a firm since it increases the incentives of its competitors’ workers and hence strengthens the competitors.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 414.

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Date of creation: 2013
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Handle: RePEc:trf:wpaper:414
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