

Why the IT labor market doesn't clear - mathattack
http://marginalrevolution.com/marginalrevolution/2012/02/why-is-there-a-shortage-of-talent-in-it-sectors-and-the-like.html

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bambax
The paper quoted in the post says:

> _I show that fi rms bid excessively for the pool of incumbent workers at the
> expense of trying out new talent. (...) This problem is most severe where
> information about talent is initially very imprecise_

This is nothing else than the Lemon effect at work.

(As it happens I wrote a post about it today: <http://blog.medusis.com/are-
you-a-lemon> )

The Lemon effect (first discussed in a paper from 1970) appears in markets
where buyers know much less about goods being sold than sellers.

When the probability of buying a bad product is high, buyers only offer to pay
the lowest price. Sellers of bad products will sell at that price, but not
sellers of good products. Therefore, after a short while, all good products
are pushed out of the market and all that's left are duds (lemons).

That explains why employers are willing to pay more for incumbent workers:
uncertainty about an incumbent workforce is much less than for "new talent",
because the former is vetted by their current employers and new talent is,
well... new.

~~~
bryanlarsen
I think that the "overpaid CEO effect" talked about by Terviö via Cowen is
similar to and related to the "lemon effect", but I'm not sure I'd go as far
as to say that it is the lemon effect. If I were to oversummarize the two
effects, I'd summarize the lemon effect as "an abundance of lemons depressing
prices" and the overpaid CEO effect as "an abundance of lemons raising
prices".

~~~
ojilles
I think the latter summary should read: "if determining the 'lemon-ness' of a
product has a high cost, it lowers the drive for finding more non-lemons and
increases both the price and tenure of the existing ones"

(Not sure if that makes sense in _your_ example, but thats how I read the
paper)

~~~
eru
There's a somewhat similar effect in other segmented markets. (I hope
segmented is the right word here.)

In areas with rent control, the bits of the property market that are less
restricted tend to be pricier, because they have to absorb all the excess
demand.

------
wyclif
"There's no shortage of smart, hardworking engineers. There's a shortage of
smart, hardworking engineers willing to work for very little money." ~ David
"Pardo" Keppel

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artsrc
The Job market does not clear because it is not a market. The information is
hoarded by one group and hidden from the other.

Creative souls can come up with tools to address issues raised here.

Workers can pay for the ability to prove themselves, by accepting lower wages
for a period in return for marketable experience, and the right to publish
some of the results as open source.

And longer term salary contracts are available, for example bonus schemes
where the worker has to stay a certain number of years to collect.

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dasil003
I love this because if it's true it means that as a proven employee I will be
overpaid, and that as a hiring manager I will have less competition for young
talent (can't say I really feel that holds up, but there may be some SV bias
in my hiring experience).

~~~
coopdog
But as a hiring manager if you pay all your new employees the same low wage,
you'll still have to pay for that first year of coding but a soon a they can
the non lemons will move on

Your job is much harder in a lemon market, trying to fine the non lemons
sooner and more efficiently than the competition

~~~
dasil003
Whoever said I would pay them the same low wage? I already gave one reason in
another thread about why I don't think it's really a proper lemon market. This
is another reason. The fact that I don't pay all up front and can evaluate the
person for a marginal cost is another.

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teyc
"I show that fi rms bid excessively for the pool of incumbent workers... "

Not true.

~~~
mathattack
Not true in that he doesn't show it, or that this doesn't happen in reality?

I see the latter happening with specialists - firms will overpay to get a much
needed specialist. I have seen instances where "key resources" get bid up
internally until they make more than they could elsewhere. I only have 4 data
points though - not enough to make a broad generalization.

