Akhil Vohra on unravelling (and on the job market this year)

Akhil Vohra, who will be finishing his Ph.D. in Economics at Stanford this year, has been thinking about unraveling for a long time.  His job market paper explores a novel channel by which markets can unravel in time, with early, inefficient hiring, even when talent isn't scarce.

Unraveling and Inefficient Matching by Akhil Vohra 

Job Market Paper, November 5, 2020

Abstract: Labor markets are said to unravel if the matches between workers and firms

occur inefficiently early, based on limited information. I argue that a significant determinant of unraveling is the transparency of the secondary market, where firms can poach workers employed by other firms. I propose a model of interviewing and hiring that allows firms to hire on the secondary market as well as at the entry level. Unraveling arises as a strategic decision by low-tier firms to prevent poaching. While early matching reduces the probability of hiring a high type worker, it prevents rivals from learning about the worker, making poaching difficult. As a result, unraveling can occur even in labor markets without a shortage of talent. When secondary markets are very transparent, unraveling disappears. However, the resulting matching is still inefficient due to the incentives of low-tier firms to communicate that they have not hired top-quality workers. Coordinating the timing of hiring does not mitigate the inefficiencies because firms continue to act strategically to prevent poaching.

You can see him talk about his job market paper in this four minute video:

 

He applies his model to a number of labor markets, both those which are unraveled and those which aren't:

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My advice if you're hiring: check him out.