Transcript Anna Vitali: How important is information in the labour market?

00:01 At some point in their life, most people would have to look for a job. This is a difficult but also fundamental moment in people’s life because it determines how much they’re going to earn and at the same time, jobs provide meaning to people in their life.

00:20 A key question that I look at is the importance of information in the labour market and what we try to understand is how providing this information allows workers to find good, stable jobs. The fundamental difference between labour markets and goods markets is that in labour markets there is a matching process.

00:40 So, the worker needs to find a firm but at the same time the firm needs to find a worker. Information is really key here. The worker needs to know what are the characteristics of the firms that is offering the job and similarly, the firms would like to know whether the workers have the characteristics that would allow him to do the job, whether he’s productive, whether he’s hardworking, whether he’s honest, and so on.

01:03 One of the key questions that we look at is, what is the impact of providing more information to workers and firms in the job market? My research focuses on developing countries because that’s a context where information is most unlikely to flow. For example, because very few people have access to the internet.

01:21 The jobs are not advertised online and most of the information is passed on through informal connections. We run an experiment where we track approximately a thousand workers across 15 cities in Uganda. And we randomly allocate some workers to be able to share their information with firms through some job placement officer and potentially receive a call back from firms.

01:46 What the randomisation allows us to do is to isolate the effect of providing information to workers, because we are looking at two types of workers who are identical in terms of skills, education and general background and the only thing that differs between these two groups is the ability of one of the groups to pass on their information to firms.

02:10 Our expectation going into the experiment, was that providing more information to workers and firms will improve the quality of the matches in the market because more information, according to economic theory, is always good. But what we find is something different.

02:27 Regardless of the workers skills, very few firms are interested in meeting the workers, primarily because they don’t have any vacancy at the time in which we asked them whether they would be interested in meeting them.

02:39 From the worker’s point of view, what this is is essentially bad news in terms of their labour market prospects. The impact of this bad news was that workers, revised their beliefs and realised that they had a much lower chance of finding a job, and also that the earnings that they would get conditional on conditional on finding a job, would be lower and this affected the way in which they started searching for jobs.

03:04 So in terms of job search, what we see is that these workers who received the bad news, put less effort into job search and at the same time, they directed their search towards firms that were of lower quality, typically firms that were offering lower wages and that, were less likely to offer them formal contracts.

03:24 The reason why we know that workers update their beliefs and update the way in which they look for jobs is because we can compare the impact on people who received the bad news on beliefs and job search relative to people who are identical but don’t receive the bad news.

03:44 The takeaway for students is that the theory and economic model are really helpful but we need to test them in the real world to think and see whether they are accurate and with the evidence that we gather from the real world, go to policymakers and make recommendations about what are the type of policies that can work and can help workers find jobs.

04:05 What we learn is that the way in which we deliver information, either intentionally or unintentionally, is really important because it can determine whether a worker gets encouraged or discouraged by the type of information that is provided.

04:21 So workers who had their information shared had overly optimistic beliefs about what would be the chances of firms calling them back. Intuitively, we get it on some level. Someone aspires to be a singer or a dancer or a footballer, and at some point they’re told that they’re not good at it. They might just give up.

04:42 They might not pursue it further. And this is because the information that they get affects what they believe about themselves. This is similar to what happens to our workers. At some point they think that they have a very good chance of finding a good, stable job. And they’re told that that’s not as easy as they thought. The consequences that this has are really long term.

05:03 So up to five years later, we see that that very small news that they got when they entered the labour market leads them to do worse than workers who, again, are equally skilled but didn’t get the same type of news.

05:20 Finding good jobs really matters. It matters for workers because it influences their income and it determines their meaning in life. It matters for firms because having good workers can increase their productivity. It matters for society because matching good workers with good firms and creating efficient matches can lead to economic growth.