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At the turn of the 20th century, state and local governments in the United States began to establish public employment offices. These non-profit governmental organizations match job seekers and businesses, one of their main objectives being to protect job seekers from fraudulent activities by private employment agencies. In this paper, the author proposes a theory that describes the malpractices of private employment agencies as a situation of asymmetric information between job seekers and the private employment agencies, which could cause adverse selection in the labor exchange market.
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