Trusting Talent: Cross-Country Differences in Hiring

Abstract

This article argues that a society’s level of social trust influences employers’ hiring strategies. Employers can focus either on applicants’ potential and select on foundational skills (e.g., social skills, math skills) or on their readiness and select on more-advanced skills (e.g., pricing a derivative). The higher (lower) the social trust—people’s trust in their fellow members of society—the more (less) employers are willing to invest in employees and grant them role flexibility. Employers in higher-trust societies are therefore more attentive to applicants’ potential, focusing more on foundational skills than on advanced skills. We empirically test this theory by using a novel dataset of more than 50 million job postings from the 28 European Union countries. We find that the higher a country’s social trust, the more its employers require foundational skills instead of advanced skills. Our identification strategy takes advantage of multinational firms in our sample and uses measures of bilateral (country-to-country) trust 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.