Beggars cannot be choosers: The effect of labor market tightness on hiring standards, wages, and hiring costs

This paper analyzes the relationship between labor market tightness and f irms’ hiring behavior. We use unique linked employer-employee data to show that firms lower their hiring standards in tight labor markets, but we find no evidence that firms increase the starting wages of new hires. Exploiting detailed data on pre- and post-match hiring costs, we find that both cost components increase with the degree of tightness in the labor market. However, as pre-match search costs make up only a small share of the total hiring costs, our results highlight the importance of the post-match hiring costs for firms’ adjustment to tightness.