Asymmetric Information in the Labor Market

Asymmetric information in the labor market arises mainly from the lack of access and interpretability of information in isolated labor markets. It is suggested that the problem of asymmetric information is quite compelling if the workers are either new in the labor market so that no employer has information regarding their productivity, or because the labor markets (across regions or countries) do not share information efficiently. The prevalence of asymmetric information often leads to statistical discrimination in the labor market. The present chapter captures the peculiarities of such markets with reference to labor market interactions between native employers and immigrant employees who originate in developing and transition countries, largely. The flow of migrants is rather large for the Organisation for Economic Co-operation and Development (OECD) countries, but the analytical dimensions of this model and the subsequent discussions should find ready relevance for rural–urban migration and south–south migration of skilled and unskilled workers also. The occupational patterns evolving in such labor markets provide some interesting results. The analytical results are supported by a large number of numerical examples and graphical depictions describing the patterns of income growth and variance across groups of native and immigrant workers. The results also help to explain the preponderance of entrepreneurial or self-employment activities for certain groups.