Wiring the Labor Market

T he labor market is replete with imperfect and asymmetric information. Workers and jobs are naturally heterogeneous, and the quality of their interaction when paired is notoriously difficult to forecast. Workers searching for a job are unlikely to be fully informed about job characteristics, and firms cannot exhaustively screen and negotiate with all applicants. Electronic commerce specifically, and the Internet more generally, promise to open new channels for improved worker-firm communications. What are the consequences of this opening? In this essay, I discuss three labor market features that are likely to be affected. First, the Internet will change the way that employer-employee matches are made. Second, labor services—the actual work done by employees—may be increasingly delivered over the Internet rather than on-site. Third, the demand for labor may become less dependent on local market conditions. Economic theory offers several insights into why these developments will produce social benefits. But these gains are unlikely to be uniformly enjoyed, and the process of realizing them will generate novel problems. One of the most significant impacts of the Internet on labor markets may be the creation of new institutions to address issues accompanying these opportunities.