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Information Frictions and Skill Signaling in the Youth Labor Market

Author

Listed:
  • Sara B. Heller
  • Judd B. Kessler

Abstract

This paper provides evidence that information frictions limit the labor market trajectories of US youth. We provide credible skill signals—recommendation letters based on supervisor feedback—to a random subset of 43,409 participants in New York's summer jobs program. Letters increase employment the following year by 3 percentage points (4.5 percent). Earnings effects grow over four years to a cumulative $1,349 (4.9 percent). We find little evidence of increased job search or confidence; instead, signals may help employers better identify successful matches with high-productivity workers. Pulling youth into the labor market can, however, hamper on-time graduation, especially among low-achieving students.

Suggested Citation

  • Sara B. Heller & Judd B. Kessler, 2024. "Information Frictions and Skill Signaling in the Youth Labor Market," American Economic Journal: Economic Policy, American Economic Association, vol. 16(4), pages 1-33, November.
    • Handle: RePEc:aea:aejpol:v:16:y:2024:i:4:p:1-33
    DOI: 10.1257/pol.20220544
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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