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Complementary Bias: A Model of Two-Sided Statistical Discrimination

Author

Listed:
  • Ashley C. Craig
  • Roland G. Fryer, Jr

Abstract

We introduce a model of two-sided statistical discrimination in which worker and firm beliefs are complementary. Firms try to infer whether workers have made investments required for them to be productive, and simultaneously, workers try to deduce whether firms have made investments necessary for them to thrive. When multiple equilibria exist, group differences can be generated and sustained by either side of the interaction – workers or firms. Strategic complementarity complicates both empirical analysis designed to detect discrimination and policy meant to alleviate it. Affirmative action is much less effective than in traditional statistical discrimination models. More generally, we demonstrate the futility of one-sided policies to correct gender and racial disparities. We analyze a two-sided version of “investment insurance” – a policy in which the government (after observing a noisy version of the employer’s signal) offers to hire any worker who it believes to be qualified and whom the employer does not offer a job – and show that in our model it (weakly) dominates any alternative. The paper concludes by proposing a way to identify statistical discrimination when beliefs are complements.

Suggested Citation

  • Ashley C. Craig & Roland G. Fryer, Jr, 2017. "Complementary Bias: A Model of Two-Sided Statistical Discrimination," NBER Working Papers 23811, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23811
    Note: LE LS PE
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    File URL: http://www.nber.org/papers/w23811.pdf
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    References listed on IDEAS

    as
    1. Kevin Lang, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 363-382.
    2. repec:hrv:faseco:33973831 is not listed on IDEAS
    3. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    4. Kevin Lang & Jee-Yeon K. Lehmann, 2012. "Racial Discrimination in the Labor Market: Theory and Empirics," Journal of Economic Literature, American Economic Association, vol. 50(4), pages 959-1006, December.
    5. Claudia Goldin & Lawrence F. Katz, 2016. "A Most Egalitarian Profession: Pharmacy and the Evolution of a Family-Friendly Occupation," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 705-746.
    6. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ashley Cooper Craig, 2018. "Optimal Income Taxation with Spillovers from Employer Learning," 2018 Papers pcr186, Job Market Papers.
    2. Hengel, E., 2017. "Publishing while Female. Are women held to higher standards? Evidence from peer review," Cambridge Working Papers in Economics 1753, Faculty of Economics, University of Cambridge.

    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J0 - Labor and Demographic Economics - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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