Job referrals can be more efficient than open search

I a perfect world with heterogeneous workers and jobs, the matches are those that maximize efficiency. But when information about the quality of either is private and cannot be revealed credibly, the economy quickly looses efficiency. The solution is then to make hiring and firing easy, so that good matches can be found by trial and error. Employers also try to gather information about their potential employees, and their socio-demographic characteristics are certainly among them. While this looks like discrimination, it is OK if it is only statistical discrimination. But one can improve on this.



Christian Dustmann, Albrecht Glitz, and Uta Schönberg study job referrals from co-workers. They find that typically shunned minority workers are more likely to be hired the more other minority workers are already present, a clear sign of job referral. In addition, these workers earn on average higher wages and are more likely to stay in such firms. In some sense, this shows that job search networks can be better than open competition under some circumstances. One could even stretch the argument to claim that favoritism could be beneficial.

Obesity on the German labor market

Being obese makes you a social outcast, especially in countries were obese people are relatively rare. This can have consequences on the labor market, as there is plenty of evidence that handsomeness matters, for example. So are obese people discriminated against on the labor market?

Marco Caliendo and Wang-Sheng Lee look at newly employed people in Germany and find that there is not much evidence of discrimination there. Only obese (but not overweight) women may be suffering in the land of beer and wurst. Of course, one may question the validity of a study that must be relying on very few observations for a subgroup of the sample. Yet, surprisingly, half of the men and 37% of the women are considered overweight or obese, proportions I would never have imagined from walking around German towns. And with sample ages averaging in the thirties, they are relatively young too. As the survey sample is based on people who have been unemployed, I wonder whether the discrimination is rather in unemployment rather than employment.

The curse of the more trustworthy gender

It sucks to be a female entrepreneur. You are more likely to repay your loan, but you still keep getting smaller loans. As a consequence, your business is smaller than that of your male counterparts. Of course, all this could be due to some common correlates that cause women to be more trustworthy and yet get smaller loans. Or it could be just plain and simple discrimination.

Isabelle Agier and Ariane Szafarz test the latter hypothesis using rich data from microfinance in Brazil. The idea is to verify whether women are discriminated against in the loan application process. Testing for discrimination is not easy as apparent inequities may make economic sense. But if across to populations a lower or equal loan default rate is associated to a higher or equal loan denial rate, then we have an ethical issue. This what Agier and Szafarz test. Sadly, the news are not good. There is significant discrimination and despite being better creditors, they get smaller loans. Even worse, repeat applicants who could thus prove their trustworthiness get even more discriminated. Of course, there could still be some unobserved variable explaining all this, but I cannot imagine what that could be.

Affirmative action and stereotypes

The ghetto culture is a very strong absorbing point. Once you are there, it is very difficult to get out, and your children will also have a very hard time. The problem with the ghetto culture is that is harbors values that a very different from mainstream culture, in particular regarding work habits. Those values are instilled by your environment (family, neighbors, community) and when you grow up around peers with poor work habits, it is difficult to acquire better habits.

Maria Sáez-Martí and Yves Zenou make this point and add that even when parents are forward-looking and care about their offspring, they will not make the investment to teach their children good habits if employers take the cultural environment of a potential employee as a signal of work habits. They discriminate, and because they discriminate they turn out to be correct. That is a vicious circle that is difficult to beat, but initiatives like affirmative action can overcome this. The condition is that quotas be high enough.

Affirmative action can be implemented in two ways, imposing quotas on good jobs, and imposing quotas in the majority group (putting some of the ghetto in the mainstream group of applicants). Low quotas are also improving work habits in the ghetto in the second case, but are detrimental in the first case. This is because the advantage of better work habits is absent, wages of good workers are lower and parents put less effort in educating their kids. With the second case, wages of good workers remain high, and parents will help their kids who have then a chance to prove themselves. An alternative policy, integration is only beneficial to the ghetto, and obviously the others will resist integration because it hurts their work habit.

On the wisdom of Groupon

For those who are just coming back from their sabbatical in the middle of the Amazon forest, Groupon is an obnoxious coupon provider that recruits members by validating coupons only when a predefined number of users promise to use them. Also, users prepay and obtain vouchers for the purchased good. The scheme seems remarkably popular among consumers, and Groupon recently turned down a US$6 billion buyout offer from Google. While it is successful among buyers, what about sellers? There is at least anecdotal evidence that some retailers regret participating in the scheme, for example when they get swamped by vouchers.

Benjamin Edelman, Sonia Jaffe and Scott Duke Kominers analyze why businesses would want to participate. First, as for any coupon, there needs to be a reason to discriminate between customers, that is, those that consistently looks for good deals from those who do not bother. Second, it is a good way to get a new business known, and thus accept temporary losses on those deals (if you are patient enough). Third, as those coupons are primarily increasing sales, it is important that the marginal cost of the product be rather low. You do not want to be in Groupon to sell personalized cakes. And I would add that you need to either cap the number of available vouchers or be ready to increase capacity in a moment's notice. You cannot reject customers with a voucher, while you could those with only a coupon.