Economic Policy (BIP Cluster) workshop. 'Matching Workers to Firms: Can an agency increase employment?'

Research Cluster

Further details

Abstract

Over the last 30 years, the private sector has played an increasing role in delivering public services in the UK and other developed economies. One area where private sector involvement has been attempted but evidence of success has been limited is works programs. That is, programs to get the unemployed back into work. We use experiments to test how different market designs affect the number of workers hired. We consider an environment where workers have heterogeneous productivity and there is a minimum wage. An agency is paid a fixed amount for each worker who is hired. The agency observes the workers’ productivity but the firm does not. The agency can decide what information to reveal to the firm. The agency and firm interact repeatedly. We test three settings. First, where the agency can only reveal true information about individual workers. Second, where the agency can only reveal true information but the information can be about the average productivity of a set of workers rather than about individual workers. Third, where the agency gives each worker a rating, but there is no constraint on how ratings are applied. For each of the settings, we test two cases: no competition (one agency and one firm) and competition (two agencies and two firms). The main findings are that allowing agencies to reveal coarser information increases employment and the unconstrained ratings give the highest employment under competition.