The Paradox of Search Frictions in Online Job Matching
The labour market is increasingly “wired” with the proliferation of more accessible job matching technologies, but they have yet to revolutionise the matching process and youth unemployment. It remains an open question about how best to design online markets that match workers to firms. Despite the drive towards frictionless labour markets, the optimal level of friction in application decisions is unlikely to be zero, as demonstrated by the high volumes of ill-targeted online applications. Economic theory suggests that imposing an application cost could induce the right workers to self-select into jobs based on their unobservable “fit”. In light of this puzzle, this study addresses the degree to which design features of online matching markets help or hinder firms in finding the right worker in the world of imperfect information. In particular, I investigate whether introducing application costs that vary in size and content attracts higher quality applicants and improves retention in the context of a job matching platform connecting low-income youth to blue collar service sector jobs in Bangladesh.