The wage elasticity of recruitment

One of the factors affecting the market power of employers is the extent to which higher wages makes recruitment easier. There is very little research on this. This paper presents a methodology for estimating the wage elasticity of recruitment and applies it to German data. Our estimates of the wage elasticity of recruitment are about 1.4. We also report evidence that high-wage employers are more selective in hiring, in which case the relevant recruitment elasticity should be higher, about 2.2. Together with prior estimates of the quit elasticity these results imply that wages are 72-77% of the marginal product of labour. Further, we find lower elasticities for recruits hired from non-employment as well as for women, non-German nationals, non-prime-age workers, less skilled workers, and workers with less complex jobs.