Thursday, November 30, 2017 at 11:40am to 1:10pm
Uris Hall, 498
Shu Lin Wee
Carnegie Mellon University
Rational Inattention in Hiring Behavior (joint w/Sushant Acharya)
Abstract: We provide an information-based theory of match efficiency. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. As losses from hiring the wrong worker are amplified in a recession, firms seek to be more selective in their hiring. Inability to obtain sufficient information about applicants causes firms to err on the side of caution and accept fewer applicants in order to avoid hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, driving fluctuations in match efficiency. Quantitatively, our model accounts for changes in measured match efficiency in the data.