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

  • Frijters, Paul

    ()

    (University of Queensland)

  • Shields, Michael A.

    ()

    (Monash University)

  • Theodoropoulos, Nikolaos

    ()

    (University of Cyprus)

  • Wheatley Price, Stephen

    ()

    (University of Leicester)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 807.

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Length: 45 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:iza:izadps:dp807
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