Market for Lemons, Jobs, and Friends

The year 2009 ended with "moral hazard" becoming a household phrase, so it is only appropriate to start 2010 with a post on "market for lemons". Our on-and-off favorite sociologist Roby will soon be returning to Indonesia where we suspect he will continue to pester the Cafe baristas with his sometime acidic and bitter but often useful (just like lemons!) questions, comments, notes, links, and whatnot. In this intriguing post, Roby ponders his foray into the job market back home which led him to enter the market for friends, and explains why many times what one finds in those markets are "lemons". - Kate

Market for Lemons, Jobs, and Friends
by Roby

I have decided to return to Indonesia and before experiencing Jakarta’s infamous traffic, undependable electricity, and dysfunctional bureaucracy in Jakarta, I must first solve the most important problem while I’m still here: getting a job.

If I were applying for jobs here things would be much simpler. Although getting a good job is still a challenge, the process of getting a job is simple. Just look at job ads where they are looking for someone resemble my qualifications, send dozens of applications, and wait until you get a response. When the first batch of applications doesn’t work, then repeat the process and send another batch and so on.

It is very unlikely that the above method works in Indonesia. I think, in Indonesia most jobs that are advertised are lemon jobs in the same way that the market for used cars are saturated with lemon cars. The mechanism is the same. People try to move out from bad jobs just as they try to sell bad cars. While if they find good jobs they will keep it. Therefore, the average quality of advertised jobs tend to be lower than the quality distribution in the population. Moreover, the worst job tends to circulate more rapidly.

The best strategy to avoid getting lemons is to get inside information. Typically, this inside information comes from social networks. Furthermore, the best inside information tend to come from friends. Not because friends have better knowledge or better judges, but because they have incentives to not ruin us. Thus, the rational thing to do in a lemon market is to ask friends.

I asked around and got some potential job offers. Being a sociologist, however, I know that I’m surrounded by people who tend to have the same information. To get more diverse information, strong ties are less useful than weak ties. Strong ties tend to create cliques and the same information tends to circulate among the same person. On the other hand, weak ties eliminate redundancy and expose us to novel information. Wanting to throw a wider net, I started making new acquaintances in new communities. In short, in addition to be in job market, I’m also in friends market.

It turns out friends market is a lemon market as well. In a new community, our first acquaintances tend to be lemons. People who are not pleasant to be with tend to have more free time – because others who know avoid them - and hence it is more likely to meet them. Again, inside information is imperative in this case.

Markets solve matching problems. But how markets look like depend on the kind of goods. In lemon markets, it could be that the market mechanism is highly embedded in social relations because people strive for inside information; renders the outcome depends as much on social structure as on individual preferences.