Bilateral Uncertainty in a Model of Job-Market Screening with Intermediaries

We look at a job-market model of bilateral uncertainty. Workers are uncertain about what job descriptions advertised by firms really mean and firms are uncertain about the qualifications of workers before they are interviewed. Both types of uncertainty can be resolved but both processes are costly. Intermediaries (recruiters) can perform the job matching but only at the cost of transforming the firm's objective. Our model is one in which potential employees are screened competitively through the offer of pairs of <incentives,job descriptions>. What drives the results of the model is that (i) job descriptions are fundamentally incomplete and therefore costly to communicate and (ii) that the firm has inferior knowledge of the (endogenous) workers' inside options than recruiters have. Therefore it may be cheaper for the firm to hire an intermediary than to negotiate by itself. We study the role of an external intermediary who uses a Vickrey auction to discriminate between workers' qualifications. We find that the presence of a recruiter changes the structure of the offered packages by distorting the job descriptions upwards. We show that the presence of competition among recruiters alters the market outcome and lowers the social efficiency of matching if workers choose recruiters randomly. If we allow recruiters to announce their