Statistical Discrimination in a Competitive Labor Market
Author(s)
Jonathan Berk
Abstract
This paper studies the effect of employee job selection in a model of statistical
discrimination in a competitive labor market. In an economy in which there
are quality differences between groups, a surprisingly strong condition
is required to guarantee discrimination against the worse qualified group
--- MLRP must hold. In addition, because of the self-selection bias induced
by competition, the resulting discrimination is small when compared
to the magnitude of the underlying quality differences between groups.
In cases in which the discrimination results because employers' ability
to measure qualifications differs from one group to another, the conditions
under which one group is discriminated against are much weaker. However,
the group employers know least about is always favored. The
economic impact of discrimination that is derived from quality differences
between groups is shown to be quite different to the economic impact of
discrimination that derives from differences in employer familiarity between
groups. In the latter case, for a set of equally qualified employees, it
is possible for members of the group that is discriminated against
to have higher wages. Finally, we show how the results can be used to explain
a number of empirical puzzles that are documented in the literature.
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