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Hope there is an option to not show your intention to some recruiters especially if they are also employed by your current employer. Otherwise I can see a potentially uncomfortable discussion when the recruiter who finds you is an internal recruiter for your current employer.
"Dan Shapero, LinkedIn’s Careers product lead, told me that if you turn on Open Candidates, the “looking for new work” signal will only be beamed out to recruiters who are not in any way connected to the place where you currently work. That means that even if you are looking, you won’t jeapordize your current job in the process."
How do they prevent 3rd party recruiters?
My fear exactly.

I get the impression that LinkedIn truly believes that companies will use them and them alone for recruiting.

This option will fail with really bad consequences for some job seekers.

Yes. Similar to Angel lists the default is to hide your Open to Opportunities tag to anyone from your company. I'm not sure about other companies under the same umbrella... Say you work for Youtube. Are you hidden from Google employees?
We outsource our HR/recruiting to a few third parties in a small market (Cleveland, OH, USA), there's just no way I'd trust this. Word gets out fast enough as it is here, among other things that happen behind closed doors that I wish I could bring up publicly :(
Recruiter here. I heard of this feature early on. For a couple weeks its was great and I actually ended up finding two C# developers who I helped find new jobs. It seems to be a little more wide spread now and not as useful but I'm glad the option is there.
most managers end up doing so much recruiting on their own that I'd be surprised if many of them did not already have this "premium" feature.
I wonder how useful this actually is. Since I like my current, remote-based job, I have tried to signal to recruiters that I'm not interested. In the "Advice for Contacting" section, I state: "I am currently satisfied in my current job and am not actively looking. I am not interested in positions that would require relocation. I would only be interested in positions that allow for remote work, preferably with an predominantly remote-based team."

I figure this says no while still leaving a window open for any other remote based jobs. But that gets ignored and I still get all sorts of recruiter spam sent my way through linkedin. I am pretty sure that even if I outright stated "do not contact me with employment opportunities", I would still receive quite a bit.

Now, if I was looking, I'd have a different advice there and I wouldn't call it "recruiter spam". It hardly seems that recruiters need an invitation to send you opportunities, and difficult to discourage them.

I used this feature and recently landed a job. I'd say I love this feature.

My main problem has been that I don't get nearly that many recruiters approaching(when I am actively looking for a job) as many as my peers claim they get. I don't really understand it.

Then I turned this feature on, and my job search became easier. I got plenty of recruiters reaching out to me regarding jobs (I went from 1-2 a week to 2-3 a day).

I'm assuming that it improves the signal to noise ratio. If everybody started to use this feature, recruiters would target better and people who do not want to be approached by recruiters at that point in time, will get less of those mails.

Yes, but we are in a high demand field. Our marketing department got 150 applicants or something for a job they posted. We got two in the IT dept.
Recruiting works like any other sales job. You just keep ignoring any "no"s in the way (such as "don't contact me") because that's how you get to a yes.
Is there a feature to block any and all recruiters from contacting you?