Interventions that fill gaps in labour market information can help people in developing countries find well-paid jobs. These interventions are much cheaper than common alternative policy options, and initial evidence suggests that firms can also benefit.
In developing countries, jobs are often poorly paid, informal, and unstable, trapping people in poverty and hindering economic growth. Improving the functioning of labour markets is thus a major priority for policymakers. However, a recent review of experimental evaluations of labour market policies in developing countries found that available interventions (training, wage subsidies, job search support) might not be particularly effective (McKenzie 2017). In this Growth Brief, we present new evidence on interventions that target gaps in labour market information.1 We find that interventions that certify skills are particularly effective at helping jobseekers secure higher-paying jobs. Earnings gains range between 10–30%. These interventions are also cheap, and thus highly cost-effective.
Recent cross-country evidence shows that the labour markets of poorer countries are characterised by weak wage growth and a wide use of temporary contracts (Lagakos et al. 2018, Donovan et al. 2018). Informality is also widespread (AfDB 2012).
So how can policymakers in developing countries help jobseekers secure better jobs? In this brief we focus on policies that target information in labour markets. Information is central to efficient market functioning, but in developing countries, crucial labour market information may not be widely available due to the limited diffusion of information technologies, fast urbanisation, and a disproportionately young labour force with little previous work experience. In these labour markets, jobseekers may not be able to easily access information about vacancies, and firms may not be able to accurately assess applicants’ skills. This brief will look at policies designed to address these information frictions.2
- Reducing information gaps can increase employment quality and earnings for jobseekers. Recent evidence shows that certifying skills can generate large earnings increases for jobseekers – three recent studies show effects ranging from 10-30%. Employment effects, on the other hand, are more modest, ranging from 2-5 percentage points (pp). Interventions that help jobseekers find information about vacancies, or that target social norms, have also shown impacts on employment outcomes.
- Providing information is cheap and effective. Information interventions cost between $10-20 per participant. This is cheaper and more cost-effective than other active labour market policies such as training or wage subsidies. However, more research is needed on their equilibrium effects.
- Providing information to workers can also benefit firms. Preliminary evidence suggests information interventions can help firms fill vacancies and hire more productive employees. However, firms may underestimate the benefits of investing in information diffusion and quality.
- The way information is provided matters. For firms to learn about jobseekers’ skills, information needs to stand out, and ideally be certified. Further, workers often ignore negative performance feedback.