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In Greenwald's paper "Adverse Selection in the Labour Market", he argued that there exists an asymmetric information problem in labor market where firms tend to keep workers who are more capable and job-seekers in that model will be regarded as on average an inferior sub-sample of workers in terms of quality.

But the paper also showed a proposition where in the three period model, in the period immediately after changing jobs, workers who quit are paid more than those who remain with their original employers. And this result seems to be not in consistent with the asymmetric information conclusion of the whole paper since job changers are groups with lower ability but get higher wage.

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How do I understand this result in the context of asymmetric information?

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  • $\begingroup$ The excerpt mentions a "marking effect". What does that term mean? Regardless, employer's information about average job-seekers becomes irrelevant insofar as the employer hires the candidate whose skills the employer (whether accurately or inaccurately) believes are greater than average. $\endgroup$ Jan 24 at 13:22

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