Asymmetric Information in Labor Markets
This academic paper on Asymmetric Information in Labor Markets discusses the application of asymmetric information in the labor market. As an ILR major, I found this application highly relevant for the hiring strategy of Human Resources Management behind any company. The candidate selection process is influenced by the fact that “efficiency requires all labor forces to be employed under the assumption that the supplier (candidate) knows the true quality of him/herself whereas the HRMs (dealer) are unable to find the true quality of a specific candidate and adverse selection effect may cause the labor market to collapse entirely”. The importance of this possibility is stressed, given the great cost of selecting the wrong candidate for a position.
The paper involves the topics of Lemon Markets and Bayesian Signaling Games but it specifically relates to the responses to market failure with asymmetric information that we discussed in class. In this example, in order to solve the problem of asymmetric information, the author proposes the solution of using transcripts as more relevant tools to understand the specialization of the candidates according to the courses they studies in their undergraduate program.