#321 2017 · Abel, Burger & Piraino (World Bank / University of Cape Town / Stellenbosch University) · Labor economics
Researchers cut South Africa's hiring gap with a one-page letter instead of training or subsidies
the problem
Employers couldn't tell skilled job-seekers from unskilled ones
background
South Africa's unemployment rate has stayed among the world's highest for decades, and the usual policy toolkit — skills training, wage subsidies, job-search assistance — treats the job-seeker as the thing to fix: not skilled enough, not searching hard enough, not subsidized enough to be worth the risk of hiring.
Economists Martin Abel, Rulof Burger and Patrizio Piraino targeted a different half of the transaction: employers screening large numbers of applicants from a labor market where almost no one has a verifiable work history couldn't tell a reliable worker from an unreliable one, and defaulted to rejecting the whole pool rather than gambling on any one candidate.
what everyone would do
The standard policy toolkit for high unemployment treated the job-seeker as the thing to fix — more skills training, wage subsidies, job-search assistance — all assuming the problem was that candidates weren't skilled, motivated, or subsidized enough to be worth hiring.
what they saw
Abel, Burger and Piraino saw that the binding constraint wasn't the job-seeker's actual skill or effort, it was that employers screening large applicant pools in a market where almost no one had a verifiable work history had no way to tell a reliable worker from an unreliable one, and defaulted to rejecting the whole unverifiable pool rather than gambling on any single candidate. The fix wasn't building new skill or motivation, it was giving employers a cheap, credible signal of skill that already existed but had no way to become visible.
the move
The researchers ran two linked experiments: a resume audit sending otherwise-identical applications with and without a one-page reference letter from a previous employer, and a field experiment encouraging real job-seekers to obtain and attach one. The letter contained no new skill, credential, or subsidy — just a former employer's plain assessment of the person's reliability, made visible to a screener who previously had nothing to go on.
why it works
A one-page reference letter from a previous employer supplied exactly the information a screener had never had access to — a plain, credible assessment of reliability from someone who had actually observed the candidate work, information no résumé alone could carry in a labor market with no verifiable formal history. Because the letter changed nothing about the candidate's actual underlying skill, only what the employer could now see about it, it worked precisely because the market's failure had been informational rather than a genuine skill gap — the same candidates who were rejected without the letter became visibly hireable with it, at a cost of essentially nothing. The effect concentrated among women specifically because the information gap the letter closed had been widest for them, showing the intervention worked exactly where the underlying invisibility problem was most severe.
the payoff
Reference letters raised callback rates by more than 60%. Among job-seekers encouraged to obtain and use one, employment rates rose 49% — driven overwhelmingly by women, for whom the information gap had been widest — closing a meaningful share of the sample's gender employment gap with no training, subsidy, or change to the applicants themselves.
where it breaks
The mechanism depends on there being a genuine, credible past counterparty willing and able to actually vouch for the person — someone with no verifiable work history at all, including no prior employer to ask, has nothing to obtain a letter from, and the intervention offers them no path forward. It also depends on employers actually trusting the letter's source enough to weight it in their screening; if forged or inflated letters became common, the signal would degrade and lose its credibility exactly the way an easily gamed credential does. And it only fixes hiring gaps that are genuinely informational — for a candidate who truly lacks the skill a job requires, no reference letter, however credible, would change the underlying mismatch between what they can do and what the job needs.
what came after
Published as Abel, Burger & Piraino, 'The Value of Reference Letters,' American Economic Journal: Applied Economics 12(3), 2020 (World Bank Policy Research Working Paper 8266, 2017), the study is cited in labor economics as evidence that hiring discrimination against the unverified can be an information problem solvable for the cost of one letter, not a skills or motivation problem requiring years of intervention.
references
- [1]Abel, Burger & Piraino — The Value of Reference Letters, World Bank Policy Research Working Paper 8266World Bank / IDEAS-RePEc, 2017ideas.repec.org
- [2]Abel, Burger & Piraino — The Value of Reference Letters, American Economic Journal: Applied Economics 12(3)American Economic Association, 2020aeaweb.org