When job adverts don’t disclose pay information, they set in motion the start of a potentially unfair wage negotiation. Economists use the term ‘Asymmetric Information’ to describe the act of purposefully withholding information that could impact a negotiation.
Asymmetric Information and Recruitment Policy
Using Twitter, Facebook and LinkedIn I’ve been encouraging the public to ask why job adverts don’t disclose pay information. It’s strange that as a society we appear to accept this lack of transparency even though, globally, there is burgeoning income inequality and unfair labor practice.
Is withholding pay information fair? Who will you ask?
Join the chat on social media using #talkpay. Read some of the discussion here.
Many countries, including South Africa, claim that citizens are entitled to fair labor practice. How is non disclosure of pay information equally fair to both employer and candidate?
What is Asymmetric Information?
It’s the way ‘agents’ (recruiters, used-car salespeople, insurance policy, cosmetics, food industry) decide to withhold information in order to protect their position.
Asymmetric information occurs when somebody knows more than somebody else and can use this to increase their ability to drive a negotiation process that’s more favorable for them.
Economist Geoff Riley provides the following examples of asymmetric information:
- Landlords who know more about their properties than tenants for example student tenants looking to rent some digs
- Mortgages: A borrower knows more about their ability to repay a loan than the lender, insufficient checks might be made
- Car insurance companies who cannot tell the risks associated with selling premiums to each single driver – they have to pool risks
- Some students have superior knowledge about how to get into the elite / best universities including which prior courses to take
- Doctors have superior knowledge about which drugs and treatments to recommend to their patients
- A used-car seller knows more about vehicle quality than a buyer – this gives rise to the problem of the Market for Lemons
- Insider information of traders in financial markets
- Information advantages for high-frequency stock market traders
Recruitment, Moral Hazard and Information Failure
Many organisations decide to outsource the recruitment function. This reduces time constraints and moral hazard.
… senior employees entrusted with recruitment may avoid hiring the best candidates who may threaten their own position in the organizational hierarchy.
(Carmichael, 1988, Friebel and Raith, 2000 cited in Sengupta, 2002)
The moral hazard is when the manager delegated to select the employee and deliberately chooses a bad candidate to ensure their seniority in the hierarchy and to validate their superiority in the field or area of operation.
Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices. (Riley) Recruitment selection panels may deem applicants who don’t request pay information as more vulnerable to negotiation pressures that drive their wage expectations down.
A candidates ‘virtue’ enters recruitment when employers want candidates to demonstrate that they deserve the opportunity provided by having a job.
Employers may imply that they want candidates who are passionate about the job regardless of pay.
Do these employer needs justify allowing the unequal distribution of information during recruitment?
Recruitment Processes Cost Applicants Money
Applicants may invest money in their appearance, transport and document presentation (CV’s etc). Most applicants can’t afford to apply to and pursue multiple job offers simultaneously when they have to rely on limited access to resources such as their own transport and internet availability (particularly in developing countries).
When applicants are denied information before the job interview, they may be wasting their resources interviewing for opportunities they can’t afford to take. This is not pro-poor as it negatively impacts on candidates. Candidates don’t limit their applications to jobs with higher wages, they apply to jobs that are relevant to personal expectations such as near a school, or close to home etc.
Do employers believe that by withholding pay information they will be able to persuade an applicant to accept a low offer during a wage negotiation? Does this imply that it’s at this point of the labor recruitment process that the type of coercion that encourages women, youth and black people to accept unfair offers, occurs?
Job adverts are used as signals to job seekers and to attract their attention. Is it fair that applicants are denied the right to rationally evaluate which opportunities to pursue and prioritize?
When pay information is withheld – does it have a massive or tiny impact on fair labor practice?
If your income is based on what you agreed to and were willing to work for – do we have growing income inequality because people are agreeing to bad wage offers?
Post your comments below!