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Testing for Employee Discrimination Using Matched Employer-Employee Data: Theory and Evidence

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  • Frijters, Paul

    () (London School of Economics)

  • Shields, Michael A.

    () (Monash University)

  • Theodoropoulos, Nikolaos

    () (University of Cyprus)

  • Wheatley Price, Stephen

    () (University of Leicester)

Abstract

In this paper, we directly test Becker’s theory of employee discrimination using matched worker-workplace data from Britain. Based on a structural model with individual and firm heterogeneity, we develop and test two predictions. Firstly, if white employees have a taste for discrimination they should report lower levels of job satisfaction the larger the proportion of ethnic minorities at their workplace. Secondly, white employees’ wages should also increase with the concentration of ethnic minority co-workers. Both hypotheses are strongly supported for white males in our data, after controlling for human capital and job amenity variables, though not for females. The white male wage premium for working amongst only ethnic minority co-workers, as compared to working only with whites, is about 12%. Neither of these effects operate via realised racial prejudice at the workplace or employees’ feelings concerning job security.

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  • Frijters, Paul & Shields, Michael A. & Theodoropoulos, Nikolaos & Wheatley Price, Stephen, 2003. "Testing for Employee Discrimination Using Matched Employer-Employee Data: Theory and Evidence," IZA Discussion Papers 807, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp807
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    Cited by:

    1. Paul Frijters & Michael A. Shields & Stephen Wheatley Price, 2004. "To Teach or not to Teach? Panel Data Evidence on the Quitting Decision," Department of Economics - Working Papers Series 916, The University of Melbourne.
    2. Timothy J. Hatton, 2011. "The Social and Labor Market Outcomes of Ethnic Minorities in the UK," Chapters,in: Ethnic Diversity in European Labor Markets, chapter 13 Edward Elgar Publishing.
    3. Paul H. Jensen, 2010. "Exploring the Uses of Matched Employer-Employee Datasets," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(2), pages 209-216.
    4. Bruno Frey & Alois Stutzer, 2005. "Happiness Research: State and Prospects," Review of Social Economy, Taylor & Francis Journals, vol. 63(2), pages 207-228.
    5. Richard Hobbs & Wanjiru Njoya, 2005. "Regulating the European Labour Market: Prospects and Limitations of a Reflexive Governance Approach," British Journal of Industrial Relations, London School of Economics, vol. 43(2), pages 297-319, June.
    6. Martin Kahanec & Klaus F. Zimmermann (ed.), 2011. "Ethnic Diversity in European Labor Markets," Books, Edward Elgar Publishing, number 13572.
    7. Kodama, Naomi & Odaki, Kazuhiko, 2013. "Employee Discrimination against Female Executives," CIS Discussion paper series 611, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Keywords

    employee discrimination; compensating differentials; structural estimation; wages; job satisfaction;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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