Working Paper #003 - Withering on the Vine: A Formal Theory of Modern Hiring Practices and Labor Market Failures

Research Abstract

This paper develops a dynamic model of job search in which AI induced hiring experiences can alter the applicant state from which subsequent search is conducted. The worker’s state includes liquid assets, beliefs about application success, accumulated negative hiring experience, and psychological search capital governing how effectively raw effort is converted into hiring outcomes. Rejection, employer nonresponse, prolonged screening, repeated assessments, and other unrewarded demands deplete search capital, raise application costs, and reduce perceived returns to search. Declining assets also increase financial pressure, lowering search effectiveness before the borrowing constraint binds. These mechanisms generate applicant-side negative state dependence in the optimized job-finding hazard even when worker productivity and the vacancy distribution remain unchanged. They may also redirect search away from identity-relevant and, under an additional alignment condition, higher-match vacancies. Financial depletion lowers the reservation job value and may induce acceptance of poorly matched employment, entry into hiring-bypass work, or non participation. If accepted employment is sufficiently burdensome, reduced on-the-job search capacity can make mismatch persistent. Because firms need not internalize how screening burdens affect applicants’ subsequent search elsewhere, individually rational hiring practices may prolong unemployment and reduce matching efficiency.