When Costly Signals Predict Performance

AI has fundamentally broken the traditional job application process. What’s an employer to do?

Jon and Peter dissect an academic paper titled "Making Talk Cheap: Generative AI and Labor Market Signaling," which examines how large language models have disrupted markets that historically relied on writing as a costly signal of quality. Specifically, job applications and college admissions.

Cover letters used to signal genuine candidate interest because they required significant time and effort to customize. But now, AI can generate personalized cover letters in seconds.

Peter immediately connects this to property management, noting how AI has made it trivially easy to generate fraudulent rental applications with fake pay stubs, identities, and emotional support animal letters promoted openly on TikTok.

The parallel extends to legal threats. What used to be a strong signal (a detailed legal letter citing lease terms) now costs nothing to produce but takes 10x more effort to refute.

Jon and Peter brainstorm for solutions, discussing costly signaling mechanisms like application fees, point-based systems (Online Jobs PH's approach), and role-specific vetting. Jon advocates for dynamic hiring processes tailored to each role. For example, video editors should submit completed work samples, not sit through interviews about their "passion for roofing."

Most provocatively, Peter proposes a new social contract: make applications harder (fees, videos, time investment), but in exchange, employers must provide genuine, specific feedback. The challenge is the legal liability and the emotional cost of having those conversations.

As Jon puts it, "I don't want a relationship with you" shouldn't open a seven-email negotiation!

The job marketplace needs complete reinvention, with differentiated approaches based on role scarcity and skill requirements.

KEY TOPICS:
(02:22) How AI Enables Fraudulent Rental Applications at Scale
(06:28) Why Employers are Drowning in Indistinguishable Applications
(09:12) LinkedIn and Indeed as Failed Marketplaces
(16:57) Role-Specific Hiring
(31:16) Legal Liability Preventing Employer Feedback to Candidates
(36:30) Harder Applications, Guaranteed Feedback
(43:54) Costly Signals vs. Predictive Factors for Job Performance

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Jon: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@MatznerJon⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ on X and at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠lazyleverage.beehiiv.com⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠
Peter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@pslohmann⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ on X and at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠peterlohmann.com