I read all these posts on r/recruitinghell and also from personal friends that the labor market appears to be broken. How is it possible that the labor market is broken? Supposedly the problem with the current labor market is that there is lack of proper signaling, where the signal of applying to a job or having a decent cover letter is removed because people are able to write a cover letter and resume with AI and also are able to auto-apply with AI. Thus, employers rely on credentials and networks to determine candidate quality.
But was the application and cover letter actually such a large signal of competence? Or the application to a job? And does this actually cause a meaningful rise in unemployment or time-to-first-job-offer? (I can see it moderately causing a decline in match quality…)
The fact that employers also use AI to screen candidates means that costs of screening are low.
Thus, the model appears to become one where all candidates apply to all positions.
All positions screen candidates and pick the best ones.
I don't see the economic inefficiency?
1) if the cost of screening is low (AI resume), people should still get hired.
2) if the cost of screening is high (interviewing), companies should just randomize the candidate pool and screen only a fixed number of them. Thus, the problem cannot be congestion.
3) if the most important signals are credentials and networking, then candidates should network and get credentials; or, the candidates that do not have these credentials will get "worse" jobs, but still be placed.
AI in hiring shouldn't cause persistent unemployment if screening costs are low, right?
byu/Aromatic-Date735 inAskEconomics
Posted by Aromatic-Date735
1 Comment
You are thinking about this the right way.
A quality cover letter and resume used to be a reasonable first cut for candidate screening. Writing a quality cover letter and resume is not easy – it reflects some combination of talent, skill, or work ethic to get it right, all of which are valuable signals to an employer. With those processes being automated, those are no longer signals of quality.
(Aside: a huge number of processes in the modern world depend upon a certain amount of friction as a quality filter. If transaction costs are high, only valuable transactions are worth pursuing. When they are low, taking a longshot with minimal value can be worth it. Expect to see a wide variety of administrative systems break under AI).
As you were getting at, there are a couple solutions:
– If application costs are low, but sorting costs are also low, then there’s an arms race of sorts – as long as sorting has a sufficient cost advantage, it can sift through the spam for the signal. This is an arms race, but similar to a spam filter, it’s possible this solution will work and keep working.
– if sorting costs stay high, then employers will need to shift more heavily towards costly signals of quality, like credentials or networking. These can be leaned into more strongly as well – systems can be built to actually validate credentials as part of an application, for instance.
– your solution about sampling and interviewing randomly will not help. If you are getting spammed, it is increasingly likely there is not a desirable candidate in your application pool. You need a method to increase the signal to noise ratio to find a worthwhile hire.
If neither of the effective mechanisms work then the market will fail – the cost of finding and hiring a quality candidate surpasses the value created by the hire, so it doesn’t happen. You might then see things like wages dropping to offset transaction costs, or more entrepreneurship to sidestep search issues.
But if screening costs are low, or there are alternative signals of quality, then the market will adjust, and the current failures will be transitory.