Inefficiencies of the labour market

My friend dtcwee has posted a side-by-side comparison of the labour market and the share market, with regard to their relative efficiencies. Why, for example, is applying for a job so much murkier and more mysterious than purchasing shares? Who benefits from such opacity?

When dtcwee first told me his idea, I thought the comparison might not be apt because in the share market example we are the buyer, while in the labour market we’re both the seller and, in a sense, the product. But I readily cede to his superior economic knowledge, and on reflection I wonder if it has more to do with psychology than anything else. People invest themselves in their careers and shape their sense of worth and identity around it. Perhaps the opacity of the labour market reflects a reluctance to reduce our precious and very important identities down to a dollar value? How would your workplace change if everyone knew each other’s salaries?

Psychology complicates the system in another way: while employment is supposedly about skills and experience, we’re yet to find a way to quarantine these useful parts from the messy confusion of humanity in which they currently reside. While it would be nice to hire just the skills and knowledge of, say, a marketing manager, unfortunately there’s a good chance that you’ll get a whole lot of unwanted neediness, passive aggression, politics, and other unexpected troubles as part of the whole package. The same goes for prospective employees looking to join a new company. What might ideally be an efficient business transaction is instead more like being adopted into a dysfunctional family. Not only are these factors difficult to measure and communicate, they may well be so prevalent that the entire system has a vested interest in resisting transparency.

None of which should be taken as a defense of the current system.

3 thoughts on “Inefficiencies of the labour market

  1. Thanks for the link. You are not a mere ‘buyer’ in the share market. You can spend a lot of time researching, strategising, and choosing. In other words, investing.

    Psychology also complicates the share market, leading to bubbles and crashes.

    I guess that’s why they call both employment and investing ‘markets’.

    The strange thing is that the publicly traded share market is heavily regulated. Listed companies must comply not only with corporations laws, but also securities laws and listing rules. Yet that doesn’t stop it from being efficient, and you don’t get political rivals fighting over liberalising it or (dis)empowering any parties.

    • Thanks dtcwee. Any other thoughts on why such discrepancies exist? Could it be because the truly rich are not part of the labour market, and would not tolerate such inefficiencies? Is it worth looking at the top-end of the labour market eg the highest earners, and seeing if their practices are the same?

  2. The income rich (top 40% of Australian earners) still get over 87% of their income through wages. I guess the system works for them so they have no desire to change it.

    I think labourers are historically seen as fundamentally different to investors from the company viewpoint.

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