Information Frictions and Skill Signaling in the Youth Labor Market

Sara B. Heller and Judd B. Kessler

American Economic Journal: Economic Policy, 2024, vol. 16, issue 4, 1-33

Abstract: This paper provides evidence that information frictions limit the labor market trajectories of US youth. We provide credible skill signals—recommendation letters based on supervisor feedback—to a random subset of 43,409 participants in New York's summer jobs program. Letters increase employment the following year by 3 percentage points (4.5 percent). Earnings effects grow over four years to a cumulative $1,349 (4.9 percent). We find little evidence of increased job search or confidence; instead, signals may help employers better identify successful matches with high-productivity workers. Pulling youth into the labor market can, however, hamper on-time graduation, especially among low-achieving students.

JEL-codes: D82 H75 J13 J24 J31 J64 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/pol.20220544

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