Question

Discuss how asymmetric information due to COVID-19 pandemic will affect labor market outcomes (wage rates, employment, etc.) in developing economies? What are some policy options to address asymmetric information?

Answer 1

Asymmetric information is a situation in which both parties involved in a transaction have unequal amount of information.The Covid 19 economic crisis is having a huge impact on employment and that requires policy action which affected the different sectors and the countries. The impact of confinement measures put by the government will have asymmetric effect in the labor marketwith negative employment effect in the developing economies..The Covid 19 is having a huge labor market impact.Due to the economic shock and the steps taken to stop  the spread of the virus , many workers have been put on short term work schemes and many have lost their jobs. Many are teleworking. Countries with higher employment in closed sectors are likely to suffer more impact.On the other hand countries with higher essential and teleworkable sectors are likely to suffer less.The effects of lockdown measures on workers are asymmetric. The most negative effects of the lockdown measures are more on the weak and disadvantaged workers.Sectors like hospitality, leisure activties and personal services have low wages .

The policy response should not be limited to short term and should include investment policies opportunities at a large scale.Asymmetric information lead to market failures, Solutions to address asymmetric information include introduction of regulations,offering warranties or guarantees on items sold,making efforts to let the consumers know about the quality and reputation  of the products and sellers .insurance etc.