Signaling in the Age of AI: Evidence from Cover Letters

Jingyi Cui, Gabriel Dias and Justin Ye

Papers from arXiv.org

Abstract: We study the impact of generative AI on labor market signaling using the introduction of an AI-powered cover letter writing tool on a large online labor platform. Our data track both access to the tool and usage at the application level. Difference-in-differences estimates show that access to the tool increased textual alignment between cover letters and job posts and raised callback rates. Time spent editing AI-generated cover letter drafts is positively correlated with hiring success. After the tool's introduction, the correlation between cover letters' textual alignment and callbacks fell by 51%, consistent with what theory predicts if the AI technology reduces the signal content of cover letters. In response, employers shifted toward alternative signals, including workers' prior work histories.

Date: 2025-09, Revised 2025-11
New Economics Papers: this item is included in nep-ain, nep-ict and nep-lma
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