Marriage mart is just like a job market: 30th October 2010: DNA

Economic theories are known for three stylised facets: they start with unrealistic assumptions, yet come up with rudimentary conclusions, which ironically have profound implications. The reader will feel the same when going through the basic work of the Nobel Prize winning economists this year: Peter Diamond, Dale Mortensen and Christopher Pissarides. The trio have been developing theories in what can be called ‘search

economics’. What is this all about?

Today, the labour market is quite typical of a ‘search market’ where there are disconnections between those who are looking for jobs and those offering them. This leads to anomalous situations where there is unemployment in the midst of several job vacancies. Why should this be so?

To begin with, there is an information asymmetry where those seeking jobs are not aware of the opportunities. Secondly, labour is not homogeneous and the skillsets and experience lead to complex mapping of available jobs where qualifications matter.

Third, even when skillsets match labour, they are not always mobile across geographies. Fourth, assuming all these factors are taken care of, the search would continue when recruiters have preconceived preferences — convent educated or top B-Schools.

Lastly, there is the issue of remuneration where both sides have their own expectations.

Further, in developed countries, where unemployment benefits

exist, there would be the tendency for the duration of unemployment to get dilated and people may not recognise their status of being unemployed. This gets reversed only when the benefits are exhausted.

How is this asymmetry bridged? Today we have advertisements,

recruitment firms and employment agencies that address the requirements of the organised sector. At the entry and middle levels, advertisements work. In fact, they are mandatory when it comes to government recruitment. At the higher level, it is the recruitment firms which fill the gap. However, there could still be information lacunae as there is no way that all job consultants put together can find all the recruiters as well as those seeking better jobs.

The ‘search theory’ has some relevance to ‘the mating game’. Mortensen felt that it takes time to meet a partner and to learn the uncertain value of any partnership. There will always be a mismatch of those looking for a partner but not finding one — which explains the large number of unmarried men and women. If one excludes marriages where the partners fall in love and marry, then the search game goes on in an analogous manner. People never know that the right partner exists somewhere.

Advertisements and dating portals do the matching but one could still end up with a sub-optimal match.

Besides, dating seldom reveals the true person as the partners are on their best behaviours. Hence, search models do not rule out the possibility of good matches that could end in separation later.

In 2001, Akerlof, Spence and Stiglitz won the Nobel for their work in a similar field of imperfect markets with information asymmetry. Akerlof had the classic case of a market for lemons, or second hand cars. Sellers always know how good their product is while buyers aren’t sure. So they always go by the lowest price and hence even good cars have to go at a lower price, thus justifying the premise that all lemons are lemons.

Signalling was the solution here, wherein one advertises the special attributes, or the vehicle is marketed by a respectable agency. The study of imperfect markets surely is a way to the top!

This holds in the labour market too where employees may actually opt for the wrong job, based on high pay and take on a job where the content may not be too exciting. This would hold for houses where buyers may not get the best deal and will never know the sand content in walls. But, more interesting is the search solution for matrimony, where both sides could assume the role of dealer of the proverbial lemon until their honeymoon ends!