Preference Signaling in Matching Markets

Many labor markets share three stylized facts: employers cannot give full attention to all candidates, candidates are ready to provide information about their preferences for particular employers, and employers value and are prepared to act on this information. In this paper we study how a signaling mechanism, where each worker can send a signal of interest to one employer, facilitates matches in such markets. We find that introducing a signaling mechanism increases the welfare of workers and the number of matches, while the change in firm welfare is ambiguous. A signaling mechanism adds the most value for balanced markets. (JEL C78)