Why More Candidates Change the Firm's Choice
This chapter examines the mechanism behind the Austrian study’s central claim: applicant supply changes not only how quickly a vacancy can be filled, but also the standard a firm can impose, the wage it can negotiate, and the people it is willing to consider. The useful question is not whether more résumés are intrinsically valuable. It is how a changing flow of candidates alters the employer’s choice to accept one person or continue searching.
The paper uses a simple search model to make that choice visible. It is not a complete description of every hiring process, nor a direct measurement of match quality. Its purpose is to connect several observable outcomes—vacancy duration, job tenure, starting pay, and worker composition—to one underlying decision: when is the next candidate worth waiting for?
From tightness to a reservation threshold
At the vacancy level, labor-market tightness means the scarcity of suitable applicants. A tight market has fewer suitable people per vacancy; a looser market has more. The distinction matters because the study moves between these terms and application supply. When an unexpected inflow of jobseekers increases applications, the market facing the vacancy becomes less tight in this specific sense. The employer has more candidates arriving over a given period.
Imagine the firm encountering applicants one at a time. Each candidate has a different potential fit with the job. Fit can include the skills the role requires, the likelihood that the worker will remain, and the value the worker can create in that workplace. The model treats this fit as a quality that varies across candidates, even though the researcher cannot observe every part of it directly.
The firm does not need to rank the entire labor force before making a decision. It can use a reservation threshold: accept the first candidate whose quality clears the threshold and keep searching when the candidate falls below it. A threshold is not necessarily a written scorecard. It is a way to represent the employer’s willingness to reject an available person in the hope of finding someone better.
When applicants are scarce, rejecting a plausible candidate has a high opportunity cost. The next suitable person may not arrive soon, and the vacancy may continue imposing costs. When applicants are abundant, the same rejection is less frightening. The firm can wait because the search has a stronger expected return. More candidates therefore raise the quality threshold the firm can sustain. The employer is not merely receiving more choices; it is gaining the option to use them selectively.
That is the first important connection between applicant supply and hiring quality. A deeper pool can improve the expected fit of the accepted worker because the firm is less likely to settle for the first minimally acceptable candidate. But the model does not say that every firm should wait longer whenever more people apply. Whether waiting is worthwhile depends on the cost of leaving the vacancy open and on how much better the next candidate is likely to be.
The value of an open vacancy is the hinge. Keeping the position unfilled may delay work, burden colleagues, or impose some other cost. In the model, that cost pushes the firm toward accepting a candidate sooner. A larger applicant flow pushes in the opposite direction by making continued search more productive. The observed filling time is the result of those forces meeting, not a direct readout of applicant quality.
Arrival speed and selectivity pull in opposite directions
More applicants affect the time to hire through two channels. The first is mechanical but important: candidates arrive more often, so the firm has more opportunities to encounter someone above its threshold. That raises the chance of filling the vacancy in a given period and tends to shorten the search.
The second channel works through rejection. Because the next opportunity is more credible, the employer can decline candidates who would have been accepted in a thin pool. A higher threshold lowers the share of arriving candidates who are acceptable. This makes the filling process slower, all else equal.
The model therefore does not imply a simple rule that a larger pool must shorten every vacancy. The arrival-rate effect has to outweigh the selectivity effect. The paper identifies a condition under which that is plausible: when keeping the vacancy open is sufficiently costly, the firm cannot wait indefinitely for an ideal candidate. It becomes more selective, but it still fills faster because applicants arrive often enough to make the higher threshold worthwhile.
Consider two otherwise similar vacancies exposed to the same increase in applications. For the first, every unfilled day disrupts work or creates a large operating cost. The employer may raise its standard slightly, but the cost of delay keeps the threshold from rising too far; a candidate above that revised standard is found sooner. For the second, delay is relatively cheap. The firm can use the same abundance to wait for a more exact fit, and the higher threshold may offset much of the increase in arrival speed. That vacancy could improve its expected match without showing the same reduction in duration. The model does not say that one of these firms is behaving irrationally. It says that applicant supply changes the value of waiting, while the cost of waiting determines how that value is used.
This is also why a population-level estimate should not be read as a promise for every individual vacancy. An average shortening of search time can conceal different responses across jobs with different urgency, replacement costs, and expected candidate quality. The study’s empirical result is a test of the average effect within its sample; the model explains the conditions under which that average should emerge. It also gives a sharper interpretation of a long search. A long vacancy may reflect scarcity, a high quality threshold, a low cost of delay, or a combination of these—not simply poor recruiting execution.
This distinction helps separate two statements that are often blurred in hiring discussions. “More applicants make recruiting easier” refers to the arrival side. “More applicants let the firm be choosier” refers to the threshold side. Both can be true at once. A firm may reject more people and still close the vacancy sooner because the candidates above its threshold appear more quickly.
The distinction also explains why a hiring metric can move without telling us which mechanism dominated. A shorter vacancy could result from a firm lowering its standard and accepting the first available person. In this study’s framework, however, faster filling alongside longer subsequent tenure is consistent with a different story: more arrivals let the firm preserve or raise its standard while reducing the time needed to find a suitable match. The later empirical results test whether that pattern appears in the linked data.
The threshold is not fixed across firms. A role with an urgent start date, costly downtime, or a scarce skill may make waiting expensive. Another role may permit the employer to keep searching. The model does not require all vacancies to react identically to the same supply shock. It gives a way to understand why the average effect can be positive while individual searches still differ.
The same threshold shapes wages and sorting
The reservation threshold also connects applicant supply to bargaining. Once the firm accepts a candidate, the parties divide the value created by the match. A better fit may create more value, which would tend to raise the wage. But the employer’s alternative to agreement also matters. If the vacancy can remain open while other applicants arrive, the firm has a stronger outside option. It can reject the current offer and continue searching with less risk.
That stronger outside option changes the worker’s bargaining position. In the model, the worker’s wage rises with the value of the match but falls as the firm’s continuation value increases. More applicants can therefore produce a worker who is better matched and a starting wage that is lower. There is no contradiction if the improvement in expected match productivity is outweighed by the employer’s increased ability to retain the surplus.
This is why the wage sign is genuinely ambiguous before the data are examined. If the productivity channel dominates, abundant applicants could raise pay. If the outside-option channel dominates, they could lower it. The model does not smuggle the empirical answer into the mechanism; it identifies the opposing forces that the estimates must distinguish.
The same logic applies to the firm’s preferences over worker types. Suppose a firm has an existing workforce that is mostly made up of one gender or nationality, and suppose the employer is more willing to hire someone resembling that workforce. In a thin pool, acting on that preference is expensive: rejecting an atypical but qualified candidate may leave the vacancy open. In an abundant pool, the firm can reject that candidate with greater confidence that another option will appear.
The result is a selection mechanism, not necessarily a change in who is applying. A larger pool may allow the employer to express a preference that was already present. A smaller pool may force the firm to widen its search and accept candidates it would otherwise have passed over. This prediction is particularly important because the composition of applicants and the composition of hires are not the same thing. A firm can hire more or fewer women or foreign workers because the pool changed, because it chose differently, or because both happened together.
The paper’s later analysis uses that distinction. It compares the effect of applicant supply on the actual hire with its effect on the gender or nationality mix of observed applicants. The search model predicts that the employer-selection part should be visible when those two margins diverge. The model thus does more than predict a broad relationship between tightness and diversity; it suggests where to look for the mechanism.
The sequence shows why “selection” is not a separate add-on to the hiring process. It is built into the decision to continue searching. Every rejection keeps the vacancy open, and every additional applicant changes what that continuation is worth. When the pool grows, the firm is simultaneously more likely to see a promising candidate soon and more able to decline a candidate who falls short of its preferred standard.
The wage and sorting implications follow from the same option value. The firm’s ability to wait is valuable because it can improve the expected match, but that ability is also leverage. It can change the wage paid to the person eventually accepted and the kinds of people who reach the final decision. A larger pool can therefore improve one definition of hiring quality while worsening another.
The model remains a guide to interpretation, not proof that the mechanism operates in exactly this form for every employer. It assumes a sequential search and a threshold decision that simplify real recruitment. It does not directly observe the firm’s private preferences or the complete quality of every candidate. What it supplies is a disciplined map: if applicant supply changes outcomes, look for the arrival, threshold, continuation-value, and selection channels rather than treating the application count as a standalone cause.
That map also clarifies what the empirical design must accomplish. Application counts may be high because a vacancy is attractive, a firm is well known, or a particular occupation is in demand. Such factors could affect filling time, wages, or tenure even if applications themselves had no causal effect. To test the search model, the study needs variation in applicant supply that is not simply a label for the vacancy’s underlying quality. The next chapter turns to how the mass-layoff instrument is used to create that test.