We theoretically analyze the effect of current-directionality induced dichroism of fundamental absorption in III-V semiconductors with a high nonequilibrium carrier density. Band filling is shown to provide giant values of relative absorption difference for two orthogonal polarizations near the transparency point. Self-adjustment of the transparency point to the incident photon energy due to absorption saturation at high incident optical powers leads to large absorption dichroism in a broad spectral range. The situation we model is relevant to polarization modulation in vertical-cavity surface-emitting laser diodes. A specialized laser construction to achieve this purpose is proposed. © 2002 American Institute of Physics.