Sorting through Cheap Talk: Theory and Evidence from a Labor Market

Population: firms who post jobs on a gig economy platform (and we observe the reactions from workers who search on that platform)

Nature of the intervention: This intervention required all firms on a gig economy platform to specify for each job whether they require a) a rookie at low pay, b) an worker at intermediate skills with medium pay, or c) and expert with high pay. While each firm had to specify this, treatment differs in terms of what happens with these statements and what firms know about that ex ante. In the "explicit arm" of the experiments, around 15000 firms were told that their announcement would be shown to workers and a roughly equal number were told that their announcement would not be shown to workers. These firms have potentially different incentives, and might make different decisions on what to announce. We can compare their distributions to study "truth-telling". In the "ambigous" arm, firms are informed that their announcement might be shown to workers or not, and we ex-post randomized roughly 11000 firms to be shown to workers and half of that not-shown to workers. Conditional on announcement, this allows us to study how these announcements affect the sorting of workers to different firms, and the wages they demand.

Abstract

In a labor market model with cheap talk, employers can send messages about their willingness to pay for higher-ability workers, which job-seekers can use to direct their search and tailor their wage bid. Introducing such messages leads—under certain conditions—to an informative separating equilibrium that affects the number of applications, types of applications, and wage bids across firms. This model is used to interpret an experiment conducted in a large online labor market: employers were given the opportunity to state their relative willingness to pay for more experienced workers, and workers can easily condition their search on this information. Preferences were collected for all employers but only treated employers had their signal revealed to job-seekers. In response to revelation of the cheap talk signal, job-seekers targeted their applications to employers of the right “type,” and they tailored their wage bids, affecting who was matched to whom and at what wage. The treatment increased measures of match quality through better sorting, illustrating the power of cheap talk for talent matching.