In a previous blogpost we summarized recent evidence on the role and effectiveness of developing country governments in providing job training, based on a forthcoming JEP paper. However, even if workers have the skills that employers want, there are concerns that they have a lot of difficulties finding the right match for these skills. This might be especially true for workers in fragmented and largely informal labor markets, where spatial and informational search frictions are pervasive, and for young workers without much work experience who may have unrealistic expectations of the labor market. The second part of our paper summarizes evidence on job search and intermediation policies designed to overcome these frictions, and we highlight some lessons here.
Most jobs are found without intermediation services, but relying on networks can restrict opportunities
Job matches between workers and firms can be highly location-, sector-, and firm-specific, so that it seems unlikely in most cases that a central planner or government will do better than the private market in filling most job openings. While many surveys ask the unemployed what methods they are using to look for jobs, far fewer surveys ask those with jobs how they actually found them. We put together data from 7 countries and show that the vast majority of jobs are found by workers either learning about jobs through their social networks of friends and relatives, or through workers directly approaching employers in their business or worksite and asking if they have openings (see Figure 1 below).
Figure 1: Most Job-seekers find jobs through networks or direct application, not intermediation services
So intermediation services only help a tiny fraction of jobseekers to find jobs. Public employment agencies tend to be underfunded and private agencies tend to have limited coverage. However, relying on social networks and directly approaching employers can mean that workers may struggle to match to jobs outside of their immediate networks and neighborhoods. What can policy then do?
Areas for policy action
· Help workers search in new locations: transport subsidies to help subsidize search in new locations within a city have had positive impacts, but these have tended to be relatively short-term. One reason is that commuting costs can be high, and job turnover high enough that workers would have to incur costs to search again. Impacts can be larger if they help people to migrate to new locations and accumulate networks and assets that can foster continued access to these new labor markets.
· Help jobseekers correct their biased beliefs: these may be especially severe for young jobseekers, who may have too high a reservation wage, and look only in too narrow a set of occupations. But the key here is delivering information that is new, credible, and that resonates with target youth – which can be difficult for many government employment offices to do.
· Enabling jobseekers to better signal their skills: some programs have seen more lasting impacts from interventions that test and certify the skills of jobseekers, and give them certificates or help them get reference letters that can all act to alleviate concerns employers may have about workers.
The promise and peril of digital: can online job portals do all this?
In principle online job platforms could help in all these areas – reducing search frictions by agglomerating job information, helping workers more cheaply find out about jobs in other locations, and potentially showing workers jobs in other sectors that they might be qualified for, as well as doing some forms of online testing and verification of skills. Large private sector jobs platforms indicate that many firms and jobseekers indeed see some value. But then what is the role for government policy here?
· Developing country governments will rarely have a comparative advantage in setting up and maintaining job platforms: governments can struggle to set up and maintain jobs portals over time, and may be limited in the types of jobs they can post for legal reasons. Government portals may work better for recruiting for government jobs in hospitals, schools, and the public sector, or setting up new bilateral migration agreements, but for the typical SME looking to hire or job seeker looking for a private sector job, they will often find private portals to work better.
· The majority of policy efforts to nudge jobseekers to use existing online platforms have not significantly boosted employment. Figure 2 shows that efforts that nudge or assist jobseekers to use existing online platforms have mostly had insignificant, or even negative, impacts on employment.
Figure 2: Most policy efforts to encourage jobseekers to use online platforms have not significantly increased employment
Governments instead might help these existing platforms work better by helping overcome some of the trust and verification issues. For example, by offering certification for graduates of training programs, and providing criminal background checks, credit records, and other reputation mechanisms that help employers trust people from outside their usual networks.
Job search assistance seems to work best when it helps jobseekers not just learn about a particular job opening, but rather learn something more fundamental
Labor turnover is very high in developing countries, particularly among youth. For example, this QJE paper by Donovan et al. documents that labor market churn is twice as high in developing countries as more advanced economies. In such a context, merely helping jobseekers more quickly find a job will likely have very temporary impacts, since the worker is likely to have left the job and be looking for another one within a year or two. Instead, for lasting impacts, job search assistance needs to help jobseekers learn something more fundamental about the way the labor market works (causing them to change where they look and what types of jobs they look for, and changing beliefs and reservation wages), and/or change how the labor market sees the worker (by providing them with ways to signal and document the skills they have).
As with our discussion on job training, this all presumes that there are enough employers with good jobs looking to find workers, and so efforts to improve job intermediation services need to work closely with labor demand and not just labor supply. Moreover, effective policy needs solutions tailored to localities, sectors and jobseeker-types along with good data systems, which is another reason that centralized national programs often struggle and much more investment in improving data and testing policies is needed.
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