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

John J. Horton, Ramesh Johari and Philipp Kircher
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Philipp Kircher: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2024013, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

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.

Pages: 76
Date: 2024-06-05
New Economics Papers: this item is included in nep-dcm and nep-exp
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Citations: View citations in EconPapers (1)

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