Natural field experiments investigating key labour market phenomena such as unemployment have only been used since the early 2000s. This paper reviews the literature and draws three primary conclusions that deepen our understanding of unemployment. First, the inability to monitor workers perfectly in many occupations complicates the hiring decision in a way that contributes to unemployment. Second, the inability to determine a worker’s attributes precisely at the time of hiring leads to discrimination on the basis of factors such as race, gender, age and ethnicity. This can lead to systematically high and persistent levels of unemployment for groups that face discrimination. Third, the importance of social and personal dynamics in the workplace can lead to short-term unemployment. Much of the knowledge necessary for these conclusions could only be obtained using natural field experiments due to their ability to combine randomized control with an absence of experimenter demand effects.
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