Probabilistic Job Offer Instrument
RCTReview
Measuring the true economic return of work experience is confounded because workers who acquire jobs often possess unobservable noncognitive skills or motivation [1, 2]. Randomly assigning probabilities of temporary employment isolates exogenous variation in short-term work experience to establish causal impacts on future labor market outcomes [2, 3].
Picture this
Imagine a raffle where job seekers are handed lottery tickets that offer different winning probabilities for a temporary paid job. Instead of picking workers based on talent or enthusiasm, the random probability lottery decides who gets work experience. This acts like a roll of the dice that forces work experience onto randomly selected individuals, allowing researchers to measure wage growth without confounding worker ability.
What the evidence says
The probabilistic job offer assignment strongly predicts short-term employment acquisition with a first-stage F-statistic of 76.36 [12, 13]. Assigning 50%, 75%, or 100% probabilities increases job acquisition by 40.2, 56.8, and 83.7 percentage points respectively (p < 0.01) [12, 13].
- Who was studied
- N = 268 male youth job seekers (aged 18+, secondary school educated) in Lilongwe, Malawi, with N = 227 successfully re-interviewed at 9-month follow-up [4-7].
- How
- Randomized Controlled Trial (RCT) utilizing Instrumental Variables (IV), assigning random job offer probabilities (0%, 1%, 5%, 50%, 75%, and 100%) stratified by baseline ability quintiles and recruiter history [5, 8-11].
What to do
Structure pilot active labor market evaluations with probabilistic selection lotteries to construct valid instrumental variables for wage effect identification.
From the source
"The probabilistic outside options strongly predict the probability with which participants received any job (earned or lottery job)." [14]
b23e842f-67cd-47d7-9b15-b6b6c8e557a2-Employment Exposure- Employment and Wage Effects in Urban Malawi.pdf