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Sorting through Cheap Talk: Theory and Evidence from a Labor Market

Author

Listed:
  • Horton, John J.

    (MIT)

  • Johari, Ramesh

    (Stanford University)

  • Kircher, Philipp

    (Cornell University)

Abstract

In a labor market model with cheap talk, employers can send messages about their willingness to pay for higher-ability workers, which job-seekers can use to direct their search and tailor their wage bid. Introducing such messages leads – under certain conditions – to an informative separating equilibrium that affects the number of applications, types of applications, and wage bids across rms. This model is used to interpret an experiment conducted in a large online labor market: employers were given the opportunity to state their relative willingness to pay for more experienced workers, and workers can easily condition their search on this information. Preferences were collected for all employers but only treated employers had their signal revealed to job-seekers. In response to revelation of the cheap talk signal, job-seekers targeted their applications to employers of the right "type," and they tailored their wage bids, affecting who was matched to whom and at what wage. The treatment increased measures of match quality through better sorting, illustrating the power of cheap talk for talent matching.

Suggested Citation

  • Horton, John J. & Johari, Ramesh & Kircher, Philipp, 2024. "Sorting through Cheap Talk: Theory and Evidence from a Labor Market," IZA Discussion Papers 17052, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17052
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    References listed on IDEAS

    as
    1. Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, September.
    2. Soohyung Lee & Muriel Niederle, 2015. "Propose with a rose? Signaling in internet dating markets," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 731-755, December.
    3. Bajari, Patrick & Hortacsu, Ali, 2003. "The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-355, Summer.
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    More about this item

    Keywords

    sorting; cheap-talk; gig-economy; freelancer; field-experiment; online job search platform;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software

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