An employer is practicing adverse selection when it has approaches or policies that lead to negative or unfavorable treatment toward a person or a group of people who are in a protected group such as women or minorities. Adverse selection can happen at any point in the employment process such as hiring, training, promotions, transfers and layoffs. For instance, if an employer requires that its workers pass a certain test to be promoted and members of a protected group pass at rates of less than 80 percent of the highest-scoring group, it is possible that the employer is practicing adverse selection. Under another definition, adverse selection also applies to a concept in the insurance industry. For example, it occurs when buyers have better information than sellers as to a particular product, say, life insurance, and so it is the consumers costing the most who generally purchase the product.
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