Search, Hiring Strategies, and Labor Market Intermediaries

Abstract

Labor market intermediaries play an important role in turnover in many labor markets. This paper analyzes one class of such intermediaries, namely, search firms. We first model the hiring decision of the firm in both succession and replacement planning. We show that employers will, in equilibrium, use search firms to find new hires even where the search firms have no technological advantage in search. This can be interpreted as being due to the search firms' ability to diversify away sampling risk.