Rational Inattention in Hiring Decisions
American Economic Journal: Macroeconomics
vol. 12,
no. 1, January 2020
(pp. 1-40)
Abstract
We provide an information-based theory of matching efficiency fluctuations. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. During recessions, higher losses from hiring unsuitable workers cause firms to be more selective in hiring. When firms cannot obtain sufficient information about applicants, they err on the side of caution and accept fewer applicants to minimize losses from hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, explaining fluctuations in matching efficiency. Quantitatively, our model replicates the joint behavior of unemployment rates and matching efficiency observed since the Great Recession.Citation
Acharya, Sushant, and Shu Lin Wee. 2020. "Rational Inattention in Hiring Decisions." American Economic Journal: Macroeconomics, 12 (1): 1-40. DOI: 10.1257/mac.20180390Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J23 Labor Demand
- J41 Labor Contracts
- M51 Personnel Economics: Firm Employment Decisions; Promotions
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