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Experimentally testing a Job Matching Service and explaining high educated unemployment in Jordan

David McKenzie's picture
In 2010, unemployment rates for Jordanian men and women between the ages of 22 to 26 with a post-secondary degree were 19 percent and 47 percent, respectively. The transition period from graduating university to stable employment for youth who do not immediately find a job is 33 months on average. This problem of educated unemployed is pervasive in many countries in MENA, and raises the question of why the labor market doesn’t clear for educated youth?

A lot of discussion of this issue has focused on issues such as shrinking government sectors combined with a range of regulatory and market failures that inhibit private firms from growing, resulting in low labor demand. But this doesn’t explain why labor markets don’t clear through movements along the labor demand curve, with wages falling to a point where labor supply equals labor demand. High minimum wages which exceed the marginal product of labor could be one reason, but this seems less important for many university graduates whose wages conditional on employment are well above the minimum wage.

A second explanation is offered by the search and matching theory of Diamond, Mortensen and Pissarides.  The reason for persistent unemployment in this model is that costly search frictions make it difficult for jobless workers to match with firms with vacancies. These search frictions can be larger for youth, who do not have previous job experience to signal their quality.  This then suggests testing interventions which can overcome these frictions. The small existing literature which has tried to do this has largely focused on the search part of search and matching theory, by offering information about new job openings, assistance with CV, and counselling of the unemployed. We are unaware of previous attempts that aim to explicitly match workers and firms to lower these matching frictions. A new working paper of mine with Matthew Groh, Nour Shammout and Tara Vishwanath attempts to do this.

Our experiment
The jobseeker sample consists of 1,354 recent graduates of either community college or university in Jordan: Three-quarters (1,011 individuals) were randomly assigned to a treatment group that would be attempted to be matched to jobs, and 343 individuals were assigned to the control group. The average participant is 23.5 years old, and graduated three-quarters of a year before participating in our program. 59 percent are female, 81 percent are university graduates and 19 percent community college graduates. The most common majors are accounting and business, engineering, and computing and information technology.

The firm sample consists of 2,279 small and medium firms, who were selected via a listing survey that screened firms according to whether they planned on hiring a worker in the next six months, and whether they would consider young workers and female workers for these positions. The mean firm had 17 employees. Firms of this size typically do not have human resource departments, and have less experience hiring workers than large companies. As such, we might expect search and matching costs to be higher for such firms. This was later supplemented by a booster sample of larger firms who were potentially interested in hiring graduates through this program.

The intervention consisted of the following steps, designed in collaboration with Dr Marwan Al-Zoubi, a a professor in psychology at the University of Jordan specializing in organizational behavior and work psychology:
 
  1. Test the job-seekers: This consisted of two hours of computerized tests to measure quantitative, verbal, and spatial reasoning, proficiency in English and Excel, and personality type, and two hours of live, interactive sessions to measure soft skills, as described in a blog post earlier this year.
  2. Match job candidates to firms: firms were asked detailed questions about the positions they were considering filling, and the psychometric testing results were used to identify 3-5 candidates who would be considered good fits for the position. Candidates were then called and told about the position to check they would be interested, if not, they were replaced by another match. The firm was then sent resumes and a description of why these individuals would be a good fit. The firm would then choose whether to interview the candidate, and then whether or not to offer them a job.
  3. Follow-up: our partner organization, BDC, would then follow up with the firms and job candidates to learn the outcome of the matching process, and attempt to arrange alternate matches if the initial match fell through.
Results
The table below summarizes some key results of the experiment at the level of the match, job-seeker, and firm.

Of the 1011 individuals in the treatment group, 56 percent (564 individuals) were matched to at least one job opening. Conditional on being matched at all, 55 percent of candidates were matched to more than one job opening, with a total of 1,143 initial matches being made.

 However, only 10 percent (115 matches) of these matches resulted in a job interview, resulting in 58 job candidates being interviewed.  In 28 percent of matches, job candidates said they were not interested, and in 55 percent of matches, firms did not invite candidates for an interview.

Of the 115 matches leading to job interviews, job offers were extended by the firm in almost half the cases (54). However, job candidates refused 30 out of the 54 job offers extended, resulting in only 24 individuals getting hired. This represents only 4.3 percent of the job candidates who were matched at least once, and only 2.1 percent of the matches made. Furthermore, out of these placements, 15 individuals quit within the first month. As a result, only 9 jobs were directly generated through this matching. Not surprisingly, as a result treatment regressions show no significant impact of the job matching on employment outcomes for graduates.

What’s going on?
The paper goes through several potential explanations for the lack of impact. Based on a variety of evidence we argue that the tests did provide new information about graduates that was a useful signal as to productivity, and that the matching was done reasonably well. Job candidates turned down 28 percent of the match opportunities they were given, and turned down or quickly quit 83 percent of the job offers given. The main reasons given for rejecting the opportunity for a potential interview were that the graduate was not interested in the company or type of job – which we call a reservation prestige effect. In our survey work 84 percent of job candidates say the type of job is more important to them than the wage, and only 3 percent of unemployed youth say they are willing to work as a waiter, only 10 percent in outdoor sales, and only 25 percent in telemarketing. Most youth therefore appear to prefer to stay unemployed than work in jobs that they consider low prestige. A follow-up experiment described in the paper provides more evidence to suggest this reservation prestige channel is important.

This conclusion suggests that the necessary policy response is more difficult and complicated than if the problem were simply high minimum wages or high search costs. We view our findings as suggesting two promising directions for future policy actions. The first consist of interventions on the firm side to spur the development of a vibrant private sector that provides more skilled jobs. The second, complementary, area is efforts to try to lower the resistance of educated youth to take jobs which they consider less prestigious.
 

Comments

Submitted by Claudio Mora on

Why do wages do not lower to an equilibrium level at the "high prestige" sector if there is an excess of supply and no market failures?

Submitted by kshar on

My guess on this is that these sectors are already functioning in an equilibrium where there is an excess supply of educated youth and a wage that is much lower than would be otherwise.Now these educated youth may not be that able so as to be readily employed by these firms(in the high prestige sector),and also that the ones who are more able ,may not be willing to leave the jobs even if these pay lesser because they cant get much better opportunities without a search cost.

I think it is important to also understand that the youth have age or time on their side.I think that you ahve less qualms about waiting to get a job that you want (unless of course you have some pressing financial burden) precisely because of the fact that you are young. I think it is importnat to also know as to how do these young people decide to spend this time of their lives.Are they getting mroe trained?building up on qualifications(to get a minor edge over the others?)

Submitted by M Bohlander on

Very interesting working paper, thank you. In section 4.3, analyzing the results of the second experiment, the authors state that "the rate of application according to firm data was 3.8 percent for the high prestige jobs, and 2.7 percent for the low prestige jobs." The next sentence concludes that youth are therefore less likely to apply for low prestige jobs.

I'm rusty on my statistics - did the team run a test to verify that the difference is actually significant? As it is in prose, the 1.1 percent difference doesn't seem that notable, but I know it very well could be significant, depending on sample size, etc. Didn't see anything in the Appendices and was curious, considering that data is the foundation for several later conclusions.

Thanks for reading that far into the paper! I agree the main point here is how low the application rates are for both types of jobs. The difference is significant in a one-tailed test (p=0.07) but not in a two-tailed test (p=0.15). Our discussion of reservation prestige as a factor explaining the high unemployment is based on the variety of evidence presented, but I agree we need to read through and be a bit more careful about how we use the evidence from this second experiment.

Submitted by Ron on

Mark Granovetter’s work on social embeddedness (p.481, 1985) might provide an alternative and arguably more complete theoretical lens for viewing the results of your paper. Especially in unpacking the role of “wasta” ( which your paper equates somewhat narrowly as akin to primitive cronyism) which permeates economic and social life in Granovetter’s sense i.e. embedded within social networks or connections stratified along geographical, tribal or religious lines. Particularly salient now than at anytime in its history since being founded by in 1922 and subsequent independence from the British in 1946, in light of both the Arab spring and the political instability currently buffeting the region in the wake of the Syrian civil war. Wasta therefore cannot be seen within only the search/frictions costs framework of Mortenson et al, since its influence would be felt in the prestige effect affecting job search of university-educated youth, and more broadly to government’s regulation and/or interaction(s), with the business community be it entrepreneurs or established firms in the formation of a modern private sector. A mixed methods study approach would be highly recommended for future research.

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