Labor Economic

The internet as a labor market matchmaker How effective are online methods of worker recruitment and job search?

Peter J. Kuhn (University of California, Santa Barbara, and IZA) Keywords: job search, recruitment, internet, matching, job boards

Elevator pitch Since the internet’s earliest days, firms and workers have used various online methods to advertise and find jobs. Until recently there has been little evidence that any internet-based tool has had a measurable effect on job search or recruitment outcomes. However, recent studies, and the growing use of social networking as a business tool, suggest workers and firms are at last developing ways to use the internet as an effective matchmaking tool.

Author’s main message Online tools, including job boards and social networking, could significantly reduce fric- tions in labor markets. Much of this potential is only now being realized, as early evidence showed no friction-reducing effect. Job boards are also emerging as important for the sta- tistical study of labor markets, yielding useful data for firms, workers, and policymakers. After a slow start, the internet-based job market is beginning to be used effectively.

Key findings Pros

+ The cost of looking for work and recruit- ing workers online is very low compared with traditional job search and recruit- ing methods.

+ Recent research has detected an un- employment duration reducing effect of internet job search where before no effect was detected.

+ People who look for jobs online are not casual “window shoppers”: They search just as actively as others who search off-line.

+ The advent of social networking sites as a job search tool promises to yield further improvements in labor market matching efficiency.

+ Electronic job boards—that is, web- sites where job ads and resumes are posted—are emerging as an important source of data on labor market trends.

Cons

– The low cost of applying for jobs online can result in large numbers of inappro- priate applications being submitted.

– Internet job boards can be dominated by large numbers of “stale” résumés.

– Most previous studies have found no labor market friction-reducing effects of online job seeking.

– Internet job search remains dispropor- tionately anonymous and formal, i.e. it does not take advantage of preexisting networks of friends, relatives, or col- leagues. Historically these have been the most effective search and recruit- ment tools.

IZA World of Labor | The internet as a labor market matchmaker | DOI: 10.1234/izawol.5678.v1.3 © Peter Kuhn 2013

Peter Kuhn The internet as a labor market matchmaker

Motivation Over the past two decades, a large share of commerce in developed countries has moved from bricks-and-mortar settings to the web. In the process, a number of markets—notably, books and recorded music—have been fundamentally trans- formed. Entirely new market mechanisms, such as eBay, have been created. And in a number of cases there is solid evidence that moving transactions online has had beneficial effects on market functioning.

Given all these developments, plus the fact that a large share of workers’ job search efforts and firms’ recruitment activities has shifted online, it seems possible that online matching has improved the functioning of labor markets as well. In this article I review the evidence on whether this has actually happened.

Discussion of pros and cons

Trends in internet job searching

Figure 1 shows the percentage of job seekers looking for work online in the United States in two periods: 1998–2000 and 2008–2009; the numbers are taken from a recent study by Kuhn and Mansour [1] that focused on persons aged 23–29 in both periods. Not surprisingly, there was a massive increase in online job search over this 10-year period: The share of unemployed persons who said they used the internet to look for jobs more than tripled, from 24% to 74%. Much of this increase was related to the growth of internet access—the share of unemployed persons who had internet access at home more than doubled—but was also driv- en by growing use of the internet for job search among those who did have home access. This suggests that the online tools available for job searching may have become more attractive to people seeking work. Another contributing factor, of course, is the fact that the vast majority of job advertisements have migrated to the internet: Job seekers have moved to where the jobs are advertised, while firms have moved to where the job seekers are, in a self-reinforcing cycle.

Figure 1: Trends in internet access and job search among young workers aged 23–29 in the US (%)

Source: [1].

Period and sample Home

internet access

Looking for work online, given home

access

Looking for work online

1998–2000: Unemployed 28.6 64.9 24.2 2008–2009: Unemployed 61.2 86.1 74.4 Employed job seekers 81.3 89.3 85.3

While unemployed persons, by definition, are looking for work, it is important to remember that they are not the only ones doing so in any labor market. In

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fact, in most labor markets a substantial share of job seekers already have a job. Although historical data are not available for this group, Figure 1 shows that by 2008–2009, 85.3% of employed job seekers used the internet as part of their job search. In short, over the past decade, job seekers have dramatically expanded their use of the internet as a means of finding new jobs, to the point where inter- net job search is almost universal, at least among job seekers who already have jobs.

Who looks for work online?

Not surprisingly, both in 1998–2000 and 2008–2009 job searchers who looked online were, on average, younger and much better educated than job seekers who did not [1], [2]. It is perhaps noteworthy, though, that by the second pe- riod, when internet access was much more universal, this large education gap was evident even among job seekers with home internet access. Thus, even though they had the option to look for work online from a home computer, many unemployed, less educated job seekers did not use the internet when looking for work. In neither period was there a gender difference in the use of online search. Internet job search activity is also more likely to be used by people seeking work in certain industries, such as information technology (IT), finance/insurance, and real estate [3].

Somewhat more surprising are the ethnic and racial gaps in online search—at least in the US, where these data are available. For example, while black and His- panic workers were less likely to look for work online than whites in 1998–2000, this gap was absent in the subsample of job seekers who had home internet ac- cess. By 2008–2009, blacks and Hispanics were just as likely to look for work online as white job seekers, even though they were less likely to have home inter- net access. In fact, controlling for internet access and a number of other worker characteristics, blacks were significantly more likely to look for work online than whites in 2008–2009. One possible explanation is that black workers have less access to informal referral networks for jobs than whites; this could compel them to use more formal, impersonal methods, like responding to job ads and posting résumés [4], which until very recently was the main way the internet was used to look for work.

How do job seekers look for work online?

While it is clear that internet job searching has increased dramatically over the past decade, what do people actually do when they look for work online? Im- portantly, the rates of internet job search displayed in Figure 1 include any kind of online activity to look for work, including e-mail. What do we know about the ways in which workers use the new electronic tools that have emerged in the past decade in their job search strategies?

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The first study of this question used data from 1998–2000 [5]. Although the survey used by the authors did not ask respondents whether they used the internet to conduct any given type of search activity (such as contacting public employment agencies or filling in resumes), it does allow us to tabulate the mix of search activi- ties separately for persons who did any online search versus persons who searched only offline. Figure 2 shows the results. Interestingly, while most activities were used in similar amounts by these two groups, internet searchers were much more likely to look for work by sending out résumés and by placing or answering job ads. At the same time, they were less likely to contact employers directly about jobs and less likely to contact friends or relatives about job possibilities. These differences confirm the notion that, at least in its early days, internet job search was primarily an anony- mous, formal process of looking at (and responding to) ads and posting résumés.

Figure 2: Use of different search activities by job seekers, by whether they engaged in any internet job search, 1998–2000 (%)

Search activity No Yes Contacted employer directly 65.0 62 Contacted public employment agency 19.5 25.2 Contacted private employment agency 6.0 10.2 Contacted friends or relatives 13.8 11.9

Contacted school/university employment center 2.0 3.5

Sent out résumés or filled out applications 45.5 64.1

Checked unions or professional registers 1.2 3.1 Placed or answered ads 12.7 24.5 Other active methods 3.4 10.1

Looked for work online?

Source: [5]

In a follow-up survey using data from 2008–2009, Kuhn and Mansour [1] were able to directly measure which types of job search activities were done mostly on- line and which mostly off-line. As in 1998–2000, the use of the internet was quite similar for most job search activities, but two stark differences were apparent: Sending out résumés and filling in applications were much more likely to be done online, and the reverse was true for contacting friends and relatives about jobs. This reinforces the idea that as recently as 2008–2009 the internet was primarily a tool for formal, anonymous job search, not for informal networking activities.

Finally, it is worth mentioning a distinct, and small but growing way in which internet job search is happening: sites like oDesk, Amazon Mechanical Turk (MTurk), Elance, and Freelancer, which mediate the actual provision of labor on- line. To the extent that less and less work in an information economy needs to be done by someone who is physically present on an employer’s premises, this form of labor market intermediation, which transcends national boundaries, may soon become the norm for many firms and workers.

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How effective is internet job searching?

As mentioned, the internet has become a widely used intermediary in many mar- kets, and studies of its effects have, in many cases, shown significant improve- ments in market functioning. For example, one feature of a well-functioning mar- ket is that identical products should be priced identically. In a well-crafted early study, Brown and Goolsbee [6] found that the advent of internet exchanges re- duced the dispersion of prices for a standardized product: life insurance. Since the internet made it easy to compare prices, firms charging above-market rates found it harder to attract customers. Another feature of well-functioning markets is that matches between suppliers and customers are made quickly, so few re- sources lie idle. Pursuing this idea, Kroft and Pope [7] have shown that the entry of the US website Craigslist—which is widely used for home rentals—into a city reduces the apartment vacancy rate.

Given this, it is perhaps surprising that most early studies of the effects of the internet on the speed and efficiency of labor market matching did not show a ben- eficial effect. The first study to compare the job search outcomes of persons look- ing for work online with similar workers not looking online was that of Kuhn and Skuterud [2]. Using data from 1998 and 2000, the authors found—much to their surprise—that unemployed people who looked for work online were less likely to be reemployed than unemployed people who did not look online. This was true even when the authors controlled for a detailed set of worker and labor character- istics, as well as the person’s overall search intensity. One possible explanation for this puzzling result was the formal nature of internet search: Not only is a formal search less effective, but persons who use it may be doing so precisely because their informal contacts and social networks are poor. Another possibility is low search intensity: Could it be that the low cost of internet job searching attracts many searches from people with only a casual interest in finding a new job?

Interestingly, Kuhn and Skuterud’s [2] results about the apparent ineffective- ness of internet job search were confirmed by a very different study conducted by Kroft and Pope [7] covering the period 2000–2007. They took advantage of the fact that the Craigslist website expanded dramatically during that period, but at different times in different cities. Since Craigslist quickly became one of the main job boards in those cities, it seems reasonable to ask whether its entry into a city reduced the city’s unemployment rate in the same way that it reduced the rental apartment vacancy rate. Consistent with Kuhn and Skuterud’s findings [2], they found no effect of Craigslist on the local unemployment rate.

Most recently, Kuhn and Mansour [1] revisited the issue of internet search ef- fectiveness using survey data obtained in 2008 and 2009. The authors did their utmost to use exactly the same sampling rules and statistical methodology used by Kuhn and Skuterud [5]. Much to the authors’ surprise, the counterproductive internet search effect found in 1998–2000 was reversed in 2008. In particular, they found that internet searchers now had unemployment durations that were about 25% shorter than non-internet searchers. While this does not prove that in-

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ternet use now has a positive, causal effect on workers’ search outcomes, it does indicate that something quite substantial has changed over the last decade in the relationship between online job search and job search success.

So why does internet job search appear to have been effective—at least for the individuals who used it—in 2008 but not 10 years earlier? Turning first to Kuhn and Skuterud’s [5] hypotheses, Kuhn and Mansour [1] show that, at least by 2008, in- ternet search was not a casual, low-intensity activity: Internet searchers engaged in just as many distinct types of activities to find work and did not disproportion- ately use search methods that are considered “passive” rather than active. As not- ed, the authors do find, however, that even in 2008 the internet was still largely a formal job search channel; thus, any improvements in internet job matching must be largely due to improvements in how these formal channels work.

What kinds of improvements might these have been? One candidate that leaps immediately to mind is the better design of internet job search sites. Certainly, the major sites have invested a great deal of money and effort in improving their prod- uct over this period, and the problems of early job sites—such as large numbers of “stale” résumés—are well known. That said, as Figure 2 makes clear, a significant share of internet searching involves activities that do not use job boards at all.

For this reason, we think that a more likely explanation for the recent greater effectiveness of internet job search—one consistent with the huge rise in online job search over the past decade—is network externalities: Internet searching is effective for job seekers only if a large selection of ads is posted online, and for firms only if many résumés are posted. Through this simple but profound mecha- nism, greater overall connectivity can raise a network’s effectiveness for every individual user.

Internet job boards as sources of labor market data

Internet job boards are a rich source of information on the number and character- istics both of vacant jobs and of those looking for jobs, and sometimes the results of the matching process between searchers and jobs. Job boards have a number of unique strengths compared with “traditional” sources of labor market data, and these strengths are being used to answer new questions that are difficult to study with traditional data.

One key advantage of job board data is their immediacy: Because new job board information can be downloaded almost continuously, it can provide highly current information on labor market trends. For example, Monster.com publishes a monthly index of online job demand, based on a number of corporate career sites and job boards in addition to Monster itself. Monster claims that its index provides useful advance information, since job advertising typically precedes hir- ing by one or two months. Monster also releases detailed reports on the online market for specific job categories (such as sales) in individual US cities. Reports like these may one day provide useful information on emerging skill shortages

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and surpluses that can be used by workers, firms, and local community colleges in refining their search and training strategies.

Also, since 2005 the Conference Board in the US has released its Help Wanted OnLine data series (HWOL), which measures the number of new, first-time online jobs and jobs reposted from the previous month for more than 16,000 internet job boards. This has now replaced the Board’s Help-Wanted Advertising Index (HWI) of print ads, which was discontinued in July 2008 after 55 years of opera- tion. A related use of internet data to measure labor market trends is based on counts of keyword searches, such as Google Trends data. For example, Askitas and Zimmermann [8] show that Google searches for terms like “unemployment office” and the names of job search engines predict unemployment rates in Ger- many, providing a useful leading indicator.

Second, job board data can serve as a complement to traditional social and labor force surveys as a general social science research tool, providing data on a number of aspects of labor market activity and outcomes that are hard to obtain otherwise. In this regard, job board data are especially useful in the study of specialized, local, or rapidly evolving labor markets in developed countries (for example, the market for IT workers) where standard labor force surveys do not provide enough detail, and of markets in less-developed countries where standard labor force data are not available or of high quality. In such situations, data that are voluntarily provided by a job board, or even data that are scraped from the internet by a user-designed web crawler, can be a unique source of basic labor market information.

Thus, for example, Kuhn and Shen [9] have used scraped job board data from China to study employers’ gender preferences in hiring. Other recent applications include estimating the effect of English language skills on earnings in countries where this information is not available in social surveys, estimating the labor mar- ket value of personality characteristics, characterizing how workers’ application behavior responds to new public information on whether a company is in financial distress, and estimating the effect of recent US unemployment insurance policy changes on job search behavior. Although processing this type of data (especially converting free-form text fields in job descriptions or résumés into quantifiable data for statistical analysis) can be time-consuming, the time and expense can compare very favorably with conducting a survey.

A final use of job board data is to advance economic research of the most basic and fundamental kind. Specifically, internal job board data contain detailed information on the mechanics of the labor market that is of potentially great rel- evance to how economists should best model labor markets. It is, in fact, amazing how little labor economists know about the actual mechanics of how workers get assigned to jobs, such as the share of jobs that are filled via formal applications, the number of applications that are submitted to a typical ad, and the number of applications workers make and where they apply.

Filling some of these gaps, in a series of recent papers Brenčič uses job board data to show that when employers are especially eager to fill a vacancy, they spec-

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ify fewer job requirements, provide more details about the job application process, fill the vacancies faster, and are more likely to fill the job with an underqualified worker. Most recently, Brenčič [10] has shown that the fraction of job ads that ad- vertise a wage varies widely across different labor markets and declines with the job’s skill level. These types of results shed a useful light on economists’ theoretical models of labor market search and recruiting, including the canonical equilibrium search models developed by economics Nobelist Dale T. Mortensen and his coau- thors. Also in this vein, Marinescu and Wolthoff’s [3] analysis of data provided by CareerBuilder, the largest job board in the US, shows that labor markets are much more specialized than the users of the above models have typically assumed.

Emerging trends and future potential

Personal and professional networking sites, like Facebook and LinkedIn, are a key online tool whose implications for labor markets are not yet fully understood. That said, one emerging way these sites affect labor markets is by providing informa- tion to employers that was previously unavailable: An increasing number of em- ployers now examine applicants’ social network profiles when deciding whom to interview. Also of potentially major importance, job search features have recently been introduced into existing networking sites, including LinkedIn’s “Apply within LinkedIn” button and Facebook.

Given Kuhn and Mansour’s [1] finding that informal online job searching— i.e. asking friends or family about jobs—is still rare but highly effective when it is used, these developments might significantly improve matching efficiency in labor markets. Improvements in job boards’ suggestion systems—which recom- mend matches both to firms and workers based on what has worked well in the past—also offer significant potential.

At the same time, internet-sourced labor market data, such as HWOL and Google Trends data on job searches, remain in their infancy. Much more remains to be done in harnessing the potential of the internet as a source of highly de- tailed, real-time data on the functioning of labor markets.

Limitations and gaps

A key limitation of studies like Kuhn and Mansour’s [1], which compare unem- ployment durations of internet versus non-internet searchers, is that they do not reveal the effects of improved search technologies on the overall unemployment rate in the economy. It remains to be seen whether making each “horse” in the race for jobs faster yields substantial aggregate benefits in terms of improved quality of matching and lower overall unemployment. Thus, additional research on the aggregate effects of the new search technologies would be very useful.

And while internet job boards have tremendous potential as data sources, it is important to remember that these data are not representative of the workers or

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jobs in the labor market as a whole. By their nature, ads represent vacant jobs, which means that growing and high-turnover industries, occupations, and regions will be overrepresented. By the same token, unemployed, mobile, and dissatisfied workers will be overrepresented in job board résumés.

Finally, as we have noted, young and highly educated workers are much more likely to job search online than other workers. Additional challenges affecting the representativeness of online job postings are “multihoming” (the tendency of firms (workers) to post the same ad (résumé) on multiple job boards) and dupli- cates (the tendency of employers on some sites to frequently repost the same ad until a vacancy is filled). These technical issues need to be resolved to make job board data more useful as an indicator of national patterns and trends.

Summary and policy advice

Despite negative early findings, recent research suggests that online job search- ing might indeed speed up the reemployment of unemployed workers. If so, the rapid spread of internet job searching suggests that the rise in unemployment seen in the Great Recession, large as it was, may actually underrepresent its severity compared with previous recessions. Macroeconomic policymakers may wish to take this into account.

Another emerging policy concern involves the effects of online labor exchang- es like MTurk and oDesk, which allow the direct online exchange of labor services, often across international borders. At the moment these exchanges, like “main- stream” job boards, are essentially unregulated and are not effectively governed by any country’s labor standards legislation. Whether online exchanges (and the labor they facilitate) should be regulated is a question policymakers need to con- sider, although the industry may still be evolving too rapidly for most forms of regulation to be practical. A reasonable starting point, however, might be a com- mon set of privacy guidelines or certificates for all job boards.

Finally, policymakers may wish to use government resources to take greater advantage of the tremendous potential of internet-sourced data on labor markets. Small infusions of public funding could yield great rewards by supplementing ex- pensive, slow-moving surveys with internet-sourced data on market conditions and emerging labor market shortages that are both relatively cheap to collect and available in real time.

Acknowledgments The author thanks two anonymous referees and the IZA World of Labor Editors for many helpful suggestions on earlier drafts.

Competing interests The IZA World of Labor project is committed to the IZA Guiding Principles of Research Integrity. The author declares to have observed these principles.

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Further reading Freeman, R. B. “The labor market in the new information economy.” Oxford Review of Economic Policy 18:3 (2002): 288–305.

Kuhn, P. J. “The new economy and matching in labor markets.” In: Jones, D. (ed.). New Econ- omy Handbook. Amsterdam: Academic Press, 2003; pp. 508–523. Online at: www.econ.ucsb. edu/~pjkuhn/Research%20Papers/Handbook.pdf

Nakamura, A. O., K. L. Shaw, R. B. Freeman, E. Nakamura, and A. Pyman. “Jobs online.” In: Au- tor, D. H. (ed.). Labor Market Intermediation. Chicago, IL: University of Chicago Press, 2009; pp. 27–65. Online at: www.nber.org/chapters/c3590.pdf

Key references [1] Kuhn, P., and H. Mansour. Is Internet Job Search Still Ineffective? Discussion paper no. 5955.

IZA, September 2011. Online at: http://ftp.iza.org/dp5955.pdf

[2] Kuhn, P., and M. Skuterud. “Internet job search and unemployment durations.” American Eco- nomic Review 94:1 (2004): 218–232. Online at: www.econ.ucsb.edu/~pjkuhn/Research Pa- pers/netsearch.pdf

[3] Marinescu, I., and R. Wolthoff. “Wages, applications, and skills.” Unpublished paper, University of To- ronto, December 2012. Online at: http://individual.utoronto.ca/wolthoff/pdf/MarinescuWolthoff.pdf

[4] Holzer, H. J. “Informal job search and black youth unemployment.” American Economic Review 77:3 (1987): 446–452.

[5] Kuhn, P., and M. Skuterud. “Job search methods: Internet versus traditional.” Monthly Labor Review (October 2000): 3–11. Online at: http://bls.gov/opub/mlr/2000/10/art1full.pdf

[6] Brown, J. R., and A. Goolsbee. “Does the internet make markets more competitive? Evidence from the life insurance market.” Journal of Political Economy 110:3 (2002): 481–507. Online at: www.econ2.jhu.edu/people/harrington/375/bg02.pdf

[7] Kroft, K., and D. G. Pope. “Does online search crowd out traditional search and improve match- ing efficiency? Evidence from Craigslist.” Unpublished paper, May 2012. Online at: http://fac- ulty.chicagobooth.edu/devin.pope/research/pdf/Website_Craigslist.pdf

[8] Askitas, N., and K. F. Zimmermann. Google Econometrics and Unemployment Forecasting. Dis- cussion paper no. 4201. IZA, June 2009. Online at: http://ftp.iza.org/dp4201.pdf

[9] Kuhn, P., and K. Shen. “Gender discrimination in job ads: Evidence from China.” Quarterly Jour- nal of Economics 128:1 (2013): 287–336.

[10] Brenčič, V. “Wage posting: Evidence from job ads.” Canadian Journal of Economics 45:4 (2012): 1529–1559.

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