Hiring frictions and employment agencies in Ethiopia

Policy brief Firms

  • Firms in developing countries have a hard time hiring college graduates, which exacerbates the misperception of college graduates’ productivity.
  • This study uses a randomised controlled trial to examine the effect of employment agencies, which significantly reduce the search cost of finding college graduates, on the hiring outcomes of 400 small and medium firms in Addis Ababa, Ethiopia.
  • The findings of the study suggest that employment agencies can help firms learn about college graduates’ productivity and take more efficient hiring decisions.
  • The findings suggest that policymakers can leverage existing labour market intermediaries, such as employment agencies, to address labour market frictions more cost-effectively. Policymakers may also provide more updated labour market information to help firms make better hiring decisions.