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Competition and the Racial Wage Gap: Testing Becker's Model of Employer Discrimination

Author

Listed:
  • Hirata, Guilherme

    () (affiliation not available)

  • Soares, Rodrigo R.

    () (Columbia University)

Abstract

According to Becker's (1957) theory of taste-based employer discrimination, pure economic rents are necessary for discrimination to be observed in the labor market. Increased competition and reduced rents in the market for final goods should therefore lead to reduced labor market discrimination. We look at the natural experiment represented by the Brazilian trade liberalization from the early 1990s to study the effect of increased competition in the market for final goods on racial discrimination in the labor market. Changes in tariffs and initial employment structures are used to show that, in locations where there were relatively larger increases in exposure to foreign competition between 1990 and 1995, there were also relatively larger declines in the conditional racial wage gap between 1991 and 2000. As predicted by theory, the initial wage gap and its decline were more pronounced in regions with more employment in concentrated sectors. The effect of increased competition on the racial wage gap was not driven by changes in returns to productive attributes, in the structure of employment, or in other labor market outcomes. We find robust evidence of a negative effect of increased competition in the market for final goods on discrimination in the labor market.

Suggested Citation

  • Hirata, Guilherme & Soares, Rodrigo R., 2016. "Competition and the Racial Wage Gap: Testing Becker's Model of Employer Discrimination," IZA Discussion Papers 9764, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9764
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    References listed on IDEAS

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    Cited by:

    1. Rafael Dix-Carneiro & Brian K Kovak, 2016. "Trade Liberalization and Regional Dynamics," Working Papers id:11213, eSocialSciences.
    2. Kis-Katos, Krisztina & Pieters, Janneke & Sparrow, Robert, 2017. "Globalization and Social Change: Gender-Specific Effects of Trade Liberalization in Indonesia," IZA Discussion Papers 10552, Institute for the Study of Labor (IZA).
    3. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Margins of Labor Market Adjustment to Trade," NBER Working Papers 23595, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    discrimination; racial wage gap; competition; labor market; trade reform; Brazil;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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