Question

Question 1

Discuss four methods firms can use to mitigate against adverse selection in the recruitment process.                                                                           [40 Marks]

Answer 1

Answer

What is adverse selection?

Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality—in other words, it is a case where asymmetric information is exploited. Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party.

RISK OF ADVERSE SELECTION  
Adverse selection puts one party at risk or at a higher risk than normal. If one of the parties involved assumes that adverse selection is highly probable, it can affect their overall participation negatively, which will affect the project, initiative, company, or market. The danger of adverse selection, a situation based on hidden information, has the tendency to progressively spiral out of control until it has totally debilitated its environment.

How to minimize Adverse selection in the recruitment process?

Here’s how to do it:

1. Conduct a Thorough Job Analysis

Ensuring the criteria used to select candidates is directly related to job performance is critical to minimizing adverse impact. If you’re not very clear about the qualities you require, unconscious bias will creep into your selection process and a high level of adverse impact can occur.

2. Undertake a validation study

Analyse the results of your current recruitment practice to identify the level of adverse impact. Are you recruiting a diverse mix of candidates or are your candidates predominantly from one group? A validation study provides data and evidence that will help you evaluate the effectiveness and fairness of your selection process.

3. Use Valid and Defensible Assessments

Psychometric tests help reduce adverse impact because they’re objective. However, different people will always perform differently in any test. For example, younger people tend to perform better in concentration tests than older people; men tend to perform better than women in numerical reasoning tests; women tend to perform better in verbal reasoning tests. So, assessments have certain biases. It isn’t possible to do anything about this. The answer is to combine different job-related tests to minimize bias and adverse impact. For example, combining numerical and verbal reasoning tests will help counteract gender bias.

4. Ensure Your Testing Process is Consistently Fair

This means that groups of test takers should not be advantaged or disadvantaged in their access to your assessments. They should also receive exactly the same testing experience, no matter what device they use to take your tests. Every aspect of your selection process must be consistently fair and dependable for every candidate.

5. Broaden Your Recruitment Strategy to Include Different Groups

Every employer needs to reach out to different audiences and encourage individuals with different experiences and different backgrounds to apply. Don’t restrict your hiring to certain universities and ensure your job advertisements and promotions don’t contain images or descriptions that might alienate potential applicant groups.

Conclusion
Minimizing adverse impact, through these five steps, will provide three clear advantages. First, it will help you recruit the right people for each role – those who have the job-related competencies that you have identified as important to success in your organization and in the role. Second, bringing equality and inclusion into your recruitment process will enhance your employer brand and broaden your appeal to a diverse range of applicants, who could potentially improve the performance of your organization. Finally, creating a valid and justifiable selection process, with documented evidence at each stage, will help to protect your organization against lawsuits and discrimination claims.