Labour Market Tightness and Firms' Vacancy Posting and Hiring Decisions

Despite their importance for the success of firms, the job prospects of the unemployed and overall unemployment, the factors that determine firms' decisions to report vacancies to the Public Employment Service and to hire the unemployed are largely unexplored. We address this research gap by analysing how firms respond to labour market tightness in their region and industry, measured by the ratio of jobseekers to vacancies, the vacancy rate and vacancy duration. Our results show that firms report more vacancies to the PES when the labour market tightens, suggesting that they diversify their search channels to extend their reach and access a larger pool of potential candidates. However, we do not find a clear relationship between labour market tightness and firms' recruitment of the unemployed. The share of the unemployed in a firm's hiring tends to fall rather than rise when the labour market tightens. This suggests that the negative signal of unemployment is stronger when labour is scarce.