Who Gets Hired? The Importance of Competition among Applicants

Abstract

Despite seeming to be an important requirement for hiring, the concept of a slot is absent from virtually all of economics. Macroeconomic studies of vacancies and search come closest, but the implications of slot-based hiring for individual worker outcomes has not been analyzed in a market context. A model of hiring into slots is presented in which job assignment is based on comparative advantage. Crucially, and consistent with almost all realistic hiring contexts, being hired and assigned to a job depends not only on one’s own skill but also on the skill of other applicants. The model has many implications, the most important of which are as follows: First, bumping of applicants occurs when one job seeker is slotted into a lower paying job or pushed into unemployment by another applicant who is more skilled. Second, less able workers are more likely to be unemployed because high ability workers are more flexible in what they can do. Third, vacancies are higher for difficult jobs because easy jobs can be filled by more workers. Fourth, some workers are overqualified for their jobs, whereas others are underqualified. Mis-assigned workers earn less than they would have had they found an open slot in a job that more appropriately matches their skills. Despite that, overqualified workers earn more than the typical worker in that job. These implications are borne out using four different data sets that match the data requirements to test these points and others implied by the model.