Do Job Candidates' Effort Promises Matter When the Labor Market is Competitive? Experimental Evidence

Abstract

This study analyzes two important features of real recruitment and selection processes: competition among agents and pre-contractual announcements of agents’ efforts. As efforts are non-contractible in reality, both features are irrelevant from a standard economic perspective. However, our experiment demonstrates their behavioral relevance. Specifically, both features positively affect agents’ effort choices. Agent competition shifts the perception of bargaining power towards the principal and agents feel partly committed to their non-binding effort announcements. This supports recent research on the social norm of promise-keeping. Moreover, we provide evidence that both factors interact in that effort announcements have a particularly large effect under agent competition, i.e., when principals base their selection on the announcements. Principals anticipate the effect of agent competition in their contract offers: they offer lower surplus shares and can realize higher payoffs, while agents have lower payoffs.