Is Recruitment a Market for Lemons?









Imagine resumes being your vehicles to the new job. In fact, they actually are 🙂

What would be the incentive then for you to resort to all sort of tactics – keyword stuffing in resume to beat the Applicant Tracking System ( ATS) ,  making exaggerated claims in interviews – claims like I singlehandedly made savings of INR 75 crores in my previous organisation J

And all of this would morally be justified because you so desperately want the job

But what does that do to the broader labour markets as a whole.

In 1970, George A. Akerlof authored a paper titled ‘The Market For “Lemons”: Quality Uncertainty And The Market Mechanism’ – he talks about a scenario where there is informational asymmetry between a buyer and a seller of some good

He takes the case of used (second hand) car sales and divides the market into

  1. Good used cars and
  2. Bad used cars (bad cars are called “lemons”).

When buying a used car, the seller usually knows more about the vehicle than the buyer. Just like during marriage, your spouses’ parents know about all the pros and cons of their kid – and you do not.









Unless the buyers knows about the car’s quality with certitude, how can s/he offer a fair price?

And thus because of this information gap, low-quality cars (“lemons”) may be able to fetch the same price as high-quality cars.

If there’s no way to distinguish between good cars and lemons, good cars and lemons will sell for the same price.

Akerlof’s work suggests that eventually the lemons will push the quality goods out of the market, because why would they sell a high-quality used car when they can make a fortune off a lemon?

In recruitment, the seller (candidate) knows more than the buyer. Employers need to separate good candidates from bad ones. But still, some bad candidates still game the system and fetch the job. And if candidate game the system en masse, making exaggerated claims in interviews – – keyword stuffing in resume to beat the Applicant Tracking System ( ATS), claims like I singlehandedly made savings of INR 75 crores in my previous organisation J. As an employer, you don’t have time to have a 25 -page application form, conduct 4 interviews, 3 psychometric tests, 2 aptitude tests, and a dance-off –and thus remove the Information Asymmetry.

Depending on their attitude towards risk, if the expected profit of lying is better than telling the truth, they will go for it. The seller of bad goods needs to be deterred by consequences of being caught, the probability thereon. Else, s/he will convert the job market into a market for lemons

Are you guilty of relying entirely on observable signals when looking for employee? Say, relying on “Number of Attempts” in CA Final as the only indicator of a candidate’s talent. Say, going by how confident and suave is the candidate in the interview as compared to how effective s/he would potentially be in the workplace.

Due to information asymmetry, many highly qualified people are hired for jobs below their level of expertise or are not hired altogether

Would you allow a seller of bad goods to mask the deficiencies through loopholes in the system?

Eventually, the ultimate disappointment on actual workplace, will make the company lower the CTC offered next time. The price they’re willing to pay is based on the quality of the average in the market.

The primary reason most entrepreneurs start businesses is that most employers award jobs to candidates based on observable signals such as those found on someone’s resume

And thus the information asymmetry distorts the labour markets.

What do you think?



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