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Labor market discrimination as an agency cost

  • Pierre-Guillaume Méon
  • Ariane Szafarz

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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Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 08-19.RS.

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Date of creation: Oct 2008
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Publication status: Published by: ULB, DULBEA
Handle: RePEc:dul:wpaper:08-19rs
Contact details of provider: Web page: http://difusion.ulb.ac.be

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