Information Frictions and Skill Signaling in the Youth Labor Market

Youth employment has been near historic lows in recent years, and racial gaps persist. This paper tests whether information frictions limit young people's labor market success with a field experiment involving over 43,000 youth in New York City. We build software that allows employers to quickly and easily produce letters of recommendation for randomly selected youth who worked under their supervision during a summer youth employment program. We then send these letters to nearly 9,000 youth over two years. Being sent a letter generates a 3 percentage point (4.5 percent) increase in employment the following year, with both employment and earnings increases persisting over the two-year follow-up period. By posting our own job advertisement, we document that while treatment youth do use the letters in applications, there is no evidence of other supply-side responses (i.e., no increased job search, motivation, or confidence); effects appear to be driven by the demand side. Labor market benefits accrue primarily to racial and ethnic minorities, suggesting frictions may contribute to racial employment gaps. But improved employment may also hamper on-time high school graduation. Additional evidence indicates that letters help improve job match quality. Results suggest that expanding the availability of credible signals about young workers—particularly for those not on the margin of graduating high school—could improve the efficiency of the youth labor market. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.