The Power to Discriminate

Economic theory has long linked employer power to discrimination, but theory and empirical applications have seldom considered which form of power matters. We distinguish between labor market and product market power and design our study to isolate the role each plays in allowing discrimination to persist. Our setting leverages job displacements from mass layoffs and firm closures as a source of exogenous job search, combined with exact matching of native–immigrant worker pairs who held the same job at the same firm, in the same occupation, industry, location, tenure and wage prior to displacement. By tracking post-displacement outcomes across labor markets with differing levels of employer concentration, we identify the causal effect of labor market power on discriminatory behavior. We find that wage and employment discrimination against immigrants is amplified in concentrated labor markets and largely absent in highly competitive ones. Product market power has no independent effect, consistent with the idea that wage-setting power is necessary for discriminatory outcomes. Observed gaps fade with sustained employer–immigrant interactions, consistent with belief-based discrimination and employer learning. Together, these findings show that discrimination is not fixed, but shaped by market structure and firm-level dynamics, with implications for both theory and policy design.