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Labor market discrimination as an agency cost

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Author Info
Pierre-Guillaume Méon () (DULBEA, Université libre de Bruxelles, Brussels)
Ariane Szafarz () (DULBEA, Université libre de Bruxelles, Brussels)

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Abstract

This paper studies labor market discriminations as an agency problem. It sets up a principal-agent model of a firm, where the manager is a taste discriminator and has to make unobservable hiring decisions that determine the shareholder’s profits because workers differ in skills. The paper shows that performance-based contracts may moderate the manager’s propensity to discriminate, but that they are unlikely to fully eliminate discrimination. Moreover, the model predicts that sectors with high skill leverages discriminate less. Finally, the impacts of unknown taste for discrimination, of a wage gap between groups, and of a diversity premium are investigated.

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Publisher Info
Paper provided by Université libre de Bruxelles, Department of Applied Economics (DULBEA) in its series Working Papers DULBEA with number 08-19.RS.

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Length: 42 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:dul:wpaper:08-19rs

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Web page: http://www.dulbea.org
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For technical questions regarding this item, or to correct its listing, contact: (Pierre-Guillaume Méon).

Related research
Keywords: discrimination; agency theory; hiring.;

Other versions of this item:

Find related papers by JEL classification:
J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation
M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions

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