Avoiding Labor Shortages by Employer Signaling: On the Importance of Good Work Climate and Labor Relations

Abstract

Reversing the original signaling model, this study explains how employers signal the non-observable quality of their workplace and thereby reduce labor shortages. Based on a company data set of 204 German firms, the authors find, as predicted by their theory, that the existence of a works council, an apprenticeship training program, and a high-quality incumbent workforce significantly improves recruitment success because they all reliably signal appealing workplaces. At the same time, frequent hiring of workers with non-matching qualifications reduces recruitment success because it signals low-quality workplaces. The authors' research reveals that certain aspects of labor relations and workplace characteristics exert a significant impact on recruitment success, which cannot be explained by conventional theoretical arguments.