Filtering vs. Matching: How Applicant Tracking Systems Structurally Undermine Online Labor Markets

Contemporary labor market friction is often attributed to skills gaps or shifting worker preferences. This paper argues that the primary driver of inefficiency is the structural architecture of Applicant Tracking Systems (ATS). Originally designed to manage administrative volume, ATS have evolved into filtering mechanisms rather than matching systems—extracting unpaid labor from job seekers, white-labeling decision-making to obscure accountability, and systematically degrading the remaining talent pool (Fuller, Raman, & Sage-Gavin, 2021; Trumble, 2025). Applying Akerlof’s “Market for Lemons” (1970) and the framework of Non-Converging Nash Equilibria, this analysis demonstrates how ATS-driven exclusion creates perverse incentives: firms adopting filtering systems to manage application volume collectively undermine labor market efficiency, suppress wages, and distort the allocation of talent (Rochet & Tirole, 2003; Resnick & Zeckhauser, 2002). The dysfunction is inherent to the system itself, not a failure of calibration, and cannot be corrected by operational tweaks alone; meaningful reform requires rethinking the architecture of digital hiring systems to restore transparency, two-sided accountability, and market-clearing mechanisms (Trumble, 2026; Reuters, 2018).