Observable skills generate more jobs
Paolo Falco and his co-authors show that helping young job seekers signal their skills to employers generates large and persistent improvements in their labour market outcomes.
Helping young workers to find good jobs is one of the major policy challenges facing the world today. Young adults generally work less, earn less, and face more job insecurity than older workers. Why do young people suffer these poor labour market outcomes? The constraints they face are not fully understood, especially in developing countries. In particular, the role of frictions in the search and matching process remains under-researched.
In the newly published article Anonymity og Distance? Job Search and Labour Market Exclusion in a Growing African City (The Review of Economic Studies) Paolo and his collaborators provide experimental evidence on two key matching frictions: job search costs and the inability to signal skills. These frictions are at the heart of two distinct and widely held views on urban labour markets in developing countries:
1) the cost of job search is a crucial constraint in large, sprawling cities—as it prevents job seekers from effectively gathering information about existing opportunities and applying for those that match them best.
2) the main difficulty faced by young job seekers is to convey accurate information about their talents to employers. With little formal work experience and limited credentials, it may be particularly hard for young people to demonstrate their employability.
Paolo et al compare an intervention that improves the ability to signal skills (the “job application workshop”) to a transport subsidy treatment designed to reduce the cost of job search.
In the short run, both interventions have large positive effects on the probability of finding a formal job. The workshop also increases the probability of having a stable job with an open-ended contract. Four years later, the workshop significantly increases earnings, job satisfaction, and employment duration, but the effects of the transport subsidy have dissipated.
Gains are concentrated on individuals who generally have worse labour market outcomes. Overall, the findings highlight that young people possess valuable skills that are unobservable to employers. Making these skills observable generates earnings gains that are far greater than the cost of the intervention.