Question

Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate the traits they are seeking in a new employee?

a. True
b. False

Answer 1

Asymmetric information exists in the labor market because employers cannot observe key employee attributes before hiring them. Employers can look for signals such as degrees, awards, and references to gauge the traits they are seeking in a new employee.

Step-by-step explanation:

Asymmetric information often exists in the labor market because employers cannot observe many key employee attributes until after the person is hired. Employees, however, know whether they are energetic or detail-oriented. Employers, therefore, often seek schools to pre-screen candidates.

Employers may not even interview a candidate unless they have a degree, often from a particular school. Additionally, employers may view awards, a high grade point average, and other accolades as signals of hard work, perseverance, and ability. Finally, employers seek references for insights into key attributes such as energy level and work ethic.