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A search model with endogenous job destruction and discrimination: Why equal wage policies may not eliminate wage disparity

  • Lanning, Jonathan A.
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    This paper extends the search with discrimination framework by introducing jobs that are constrained by equal wage policies, and endogenous job destruction that creates Becker-like competitive pressure on prejudiced firms. The model predicts a number of stylized facts observed in the U.S. labor market, including persistent aggregate wage inequality, prevalent within-firm wage equality, overlapping wage distributions for different worker types, and some, but imperfect, job sorting/segregation. Numeric simulations are offered to illustrate some of the model's predictions. These include a counterintuitive relationship between wage inequality and equal wage policies that can arise in special cases: under specific assumptions equal wage policies can actually increase the steady-state level of market discrimination. I discuss this result's implication that different policies may be optimal to combat discrimination based on race versus discrimination based on gender, though this finding may be of limited practical importance.

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    Article provided by Elsevier in its journal Labour Economics.

    Volume (Year): 26 (2014)
    Issue (Month): C ()
    Pages: 55-71

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    Handle: RePEc:eee:labeco:v:26:y:2014:i:c:p:55-71
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    1. Audra J. Bowlus & Zvi Eckstein, 1998. "Discrimination and Skill Differences in an Equilibrium Search Model," UWO Department of Economics Working Papers 9802, University of Western Ontario, Department of Economics.
    2. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August.
    3. Luca Flabbi, 2010. "Gender Discrimination Estimation In A Search Model With Matching And Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 745-783, 08.
    4. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier.
    5. Black, Dan A, 1995. "Discrimination in an Equilibrium Search Model," Journal of Labor Economics, University of Chicago Press, vol. 13(2), pages 309-33, April.
    6. Albrecht, James W & Jovanovic, Boyan, 1986. "The Efficiency of Search under Competition and Monopsony," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1246-57, December.
    7. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
    8. Erica L. Groshen, 1987. "The structure of the female/male wage differential: is it who you are, what you do, or where you work?," Working Paper 8708, Federal Reserve Bank of Cleveland.
    9. Kevin Lang & Michael Manove & William T. Dickens, 2005. "Racial Discrimination in Labor Markets with Posted Wage Offers," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-145, Boston University - Department of Economics.
    10. Christopher L. Foote & Warren C. Whatley & Gavin Wright, 2001. "Arbitraging a Discriminatory Labor Market: Black Workers at the Ford Motor Company, 1918-1947," Working Papers 01009, Stanford University, Department of Economics.
    11. Higgs, Robert, 1977. "Firm-Specific Evidence on Racial Wage Differentials and Workforce Segregation," American Economic Review, American Economic Association, vol. 67(2), pages 236-45, March.
    12. James J. Heckman & Brook S. Payner, 1989. "Determining the Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina," NBER Working Papers 2854, National Bureau of Economic Research, Inc.
    13. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
    14. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-40, December.
    15. Craig, Lee A. & Fearn, Robert M., 1993. "Wage Discrimination and Occupational Crowding in a Competitive Industry: Evidence from the American Whaling Industry," The Journal of Economic History, Cambridge University Press, vol. 53(01), pages 123-138, March.
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