Labour market intermediaries’ role tells us…?

Hat tip Economist View for Vox EU David Autor.

Though heterogeneous, it is my contention that labour market intermediaries serve a common role. They address – and in some case exploit – a set of endemic departures of labour market operation from the first-best benchmark of full information, perfect competition, and decentralised price taking. Three labour market deficiencies, in particular, appear to ‘call forth’ the involvement of intermediaries: costly information, adverse selection, and (failures of) coordination or collective action. I give examples of each below. A unifying observation that ties these examples together is that participation in the activities of a given labour market intermediary is typically voluntary for one side of the market and compulsory for the other; workers cannot, for example, elect to suppress their criminal records and firms cannot opt out of collective bargaining. I argue below that the nature of participation in an intermediary’s activities – voluntary or compulsory, and for which parties – is largely dictated by the market imperfection that it addresses, and thus tells us much about its economic function.