Trusting Talent: Cross-Country Differences in Hiring

By: Letian Zhang and Shinan Wang

Format:Print
| Language:English
| Pages:82

Abstract

This article argues that a society’s social trust influences employers’ hiring strategies. In selecting workers, employers could either focus on applicants’ potential and select on foundational skills (e.g., social skills, math skills) or focus on their readiness and select on their more advanced skills (e.g., pricing a derivative). The higher (lower) the social trust, the more (less) employers are willing to invest in workers and grant them role flexibility. Employers in higher trust societies are therefore more attentive to applicants’ potential, focusing more on their foundational skills than advanced skills. We empirically test this theory using a novel dataset of more than 60 million job postings from 28 European Union countries. We find that the higher a country’s social trust, the more its employers would require foundational skills instead of advanced skills. Our identification strategy takes advantage of multi-national firms in our sample and uses bilateral trust measures to predict job requirements, while including an instrumental variable and fixed effects on country, year, employer, and occupation. These findings suggest a novel pathway by which social trust shapes employment practices and organizational strategies.