London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

Abstract for:

How Does Collective Reputation Affect Hiring? Selection and Sorting in an Online Labour Market

Guo Xu, May 2015
Paper No' EOPP 056: | Full paper (pdf)
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JEL Classification: J7; J16; L14

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Economic Organisation and Public Policy Discussion Papers
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Abstract:

How does collective reputation affect hiring and selection into jobs? Using detailed hiring data from a global online labour market, where the country of residence is the salient group characteristic, we document a mechanism through which collective reputation can perpetuate initial group inequality. Using an instrumental variable strategy, we first identify reputational externalities between an employer's very first hire and the propensity to contract more workers from the same country. Employers, contingent on their first worker's performance (as measured by a public rating), go on to almost exclusively hire from the same country. This coincides with a strong and positive supply-side sorting response: Observing their predecessor's success, workers from the same country are more likely to apply and tend to be of higher quality. Employers, facing better applicants, are in turn more likely to continue providing top ratings for later hires from the first hire country. Collective reputation hence appears to serve as a coordination device that enables workers to positively sort with employers: Good workers then attract more good workers from the same country and vice versa.