Formalized Employee Search and Labor Demand

Abstract

Firms in low-and middle-income countries rarely advertise their vacancies formally and instead use social networks. This might limit the number and type of vacancies they can profitably create. We conduct a field experiment with small and medium-sized enterprises in Ethiopia to reduce firms' cost of formal search. Treated firms search for employees outside their networks and try to fill more demanding white-collar positions. However, they struggle to fill these newly created positions and their beliefs about the returns to formal employee search decrease. Providing additional screening services for firms does not affect the results , suggesting that information asymmetries about applicants' skills do not limit formal search. We conclude that informal employee search does not limit firms' hiring in our context. * We thank