What Makes Hiring Difficult? Evidence From Linked Survey-Administrative Data

We use a novel firm survey linked to Danish administrative data to examine the factors that shape hiring decisions. Our analysis reveals three key findings. First, search and training frictions are as influential as labor costs in discouraging hiring despite potential needs. Second, these frictions disproportionately constrain younger and smaller firms, while firms with high-wage policies are less likely to report labor costs as an obstacle. Third, employers’ beliefs play a critical role: many firms prefer hiring employed rather than unemployed workers, perceiving the latter as lower ability due to negative selection or skill depreciation. Firms holding such beliefs are also more likely to report that labor market frictions impede their hiring decisions.