We show that stereotype threat can occur in a labor market signaling model where no one believes that an agent played a strictly dominated strategy. This idea of self-fulfilling statistical discrimination is different from the one Spence posed in his original work on market signaling, which requires employers to believe that low-ability women would play a strictly dominated strategy. Our analysis builds instead on an endogenous quality choice. The existence of multiple un-dominated pooling equilibria, which can generate a stereotype threat effect, is shown to depend on the shape and variance of the distribution of types as well as the value of the signal. It is more likely if the variance is low (so that the types are more similar) or if the signal has more value to the firm. We also show that a very bad stereotype forces the high-quality agent with that bad stereotype to separate. This counter-stereotypical behavior increases that label’s high-quality probability and education level. In this way the very discriminated against label overtakes the complacent good stereotype label, and the good stereotype label can suffer from a reputational Dutch disease.
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Paper provided by Florida International University, Department of Economics in its series Working Papers with number
0906.