I am exploring modern hiring market—specifically the open, resume-driven (excluding the elite or Ivy league professionals)—is drifting toward an Akerlof-style “lemons market.”

I am high-confident about the direction of the effect and low-confident about long-term equilibrium outcomes.

The core mechanism is straightforward: AI has collapsed value of cheap signals that most candidates and employers rely on historically, Unlike textbook lemons markets where high-quality sellers can exit, workers cannot refuse employment without financial ruin. This creates a uniquely harmful dynamic: wage compression without market clearance, converting wage mispricing into accumulated psychological harm.

I think we are in early stage of the shift the worse is yet to follow.

Note - Elite candidates with strong institutional signals (prestigious degrees, selective employers, difficult certifications) remain legible and hireable. But the anonymous general applicant pool—the part of the market processed through ATS filters, resume screens, and standardized interviews—is entering a downward spiral of mistrust and adverse selection.

How Akerlof’s Lemons Model Applies Here

According to Akerlof’s model - markets fail when buyers cannot reliably distinguish high-quality from low-quality goods. Three conditions matter: information asymmetry, cheap-to-fake signals, and the absence of credible verification. When these align, buyers rationally assume mediocre quality, high-quality sellers exit, and the average quality of the market deteriorates further.

This is happening in the hiring market right now (Excluding Elite Candidates). Majority of the professionals who do not have expensive degrees or certifications.

Pre AI Hiring Market

Before AI, in terms of equilibrium the hiring market was fragile but workable. Employers faced high information asymmetry: a resume and a few hours of interviewing offered only partial evidence of real-world effectiveness. Still, the system functioned because cheap signals—particularly writing quality, vocabulary choice, clarity of explanation, and the ability to describe one’s work compellingly—were costly to fake and it took lot of time and effort to fake resume for various job applications.

These soft signals, along with work history, references, and portfolio samples, acted as noisy but meaningful indicators of competence. As long as producing a polished ...

Posts

Wikitag Contributions

Comments