Low-Productivity Cost Offsets
RCTReview
Firms in rigid wage environments hesitate to open low-productivity or entry-level positions because fixed upfront recruitment costs exceed the anticipated post-hire profitability of marginal workers.
Picture this
If it costs $1,000 in advertising and interviewing to hire a worker for a job that only generates $1,200 in value, a business owner will not take the risk. If an outside agency handles all the hiring effort for free, the upfront cost drops to zero, making it profitable to create the low-margin job.
What the evidence says
Vacancies created by treated firms showed no difference in offered wages (log wage diff = -0.017, p > 0.10) or required experience, but were 12.1 percentage points more likely to be low-skilled/unqualified positions (p < 0.01), confirming that vacancy cost reductions selectively unlock lower-productivity job creation.
- Who was studied
- N = 1,825 permanent contract vacancies posted with the French Public Employment Service during the RCT sanctuary period.
- How
- OLS regression of job characteristics and predicted wages (trained on N = 1,921,148 outside vacancies) on firm treatment status.
What to do
Offer public vacancy cost subsidies specifically tailored to low-qualification entry-level roles where upfront hiring expenses block marginal employment creation.
From the source
"This evidence conforms to the idea that the drop in vacancy costs allowed treatment firms to create less productive jobs... compensated by the drop in the recruitment cost."
Are_Active_Labor_Market_Policies_Directed_at_Firms_Effective_Evidence.pdf