Increasing Employment with Coarse Information

We investigate whether an agency can increase employment by strategically coarsening information about workers' skills and abilities to employers. Theoretically, we find that such an increase is possible, and a range of employment levels can be supported in equilibrium. We test this possibility using laboratory experiments under three conditions: full information, coarse and verifiable information, and coarse but not verifiable information.  We find that, compared with full information, both treatments with coarse information increase employment at the expense of the employers' profits but not to the highest theoretically achievable levels. We also find verifiability affects several aspects of behavior. 

Joint with Surajeet Chakravarty and Luke Lindsay.