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Statistical Discrimination in a Competitive Labor Market

  • Jonathan B. Berk
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    This paper studies the effect of employee job selection in a model of statistical discrimination in a competitive labor market. In an economy in which there are quality differences between groups, a surprisingly strong condition is required to guarantee discrimination against the worse qualified group --- MLRP must hold. In addition, because of the self-selection bias induced by competition, the resulting discrimination is small when compared to the magnitude of the underlying quality differences between groups. In cases in which the discrimination results because employers' ability to measure qualifications differs from one group to another, the conditions under which one group is discriminated against are much weaker. In general, the group employers know least about is always favored. The economic impact of discrimination that is derived from quality differences between groups is shown to be quite different to the economic impact of discrimination that derives from differences in employer familiarity between groups. In the latter case, for a set of equally qualified employees, it is possible for members of the group that is discriminated against to have higher wages. Finally, we show how the results can be used to explain a number of empirical puzzles that are documented in the literature.

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    File URL: http://www.nber.org/papers/w6871.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6871.

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    Date of creation: Jan 1999
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    Handle: RePEc:nbr:nberwo:6871
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    1. Kuhn, Peter J, 1990. "Sex Discrimination in Labor Markets: The Role of Statistical Evidence: Reply," American Economic Review, American Economic Association, vol. 80(1), pages 290-97, March.
    2. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
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    4. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
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    7. Ronald Oaxaca, 1971. "Male-Female Wage Differentials in Urban Labor Markets," Working Papers 396, Princeton University, Department of Economics, Industrial Relations Section..
    8. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-61, September.
    9. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
    10. Lang, Kevin, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 363-82, May.
    11. Even, William E, 1990. "Sex Discrimination in Labor Markets: The Role of Statistical Evidence: Comment," American Economic Review, American Economic Association, vol. 80(1), pages 287-89, March.
    12. Kuhn, Peter J, 1987. "Sex Discrimination in Labor Markets: The Role of Statistical Evidenc e," American Economic Review, American Economic Association, vol. 77(4), pages 567-83, September.
    13. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
    14. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
    15. Derek A. Neal & William R. Johnson, 1995. "The Role of Pre-Market Factors in Black-White Wage Differences," NBER Working Papers 5124, National Bureau of Economic Research, Inc.
    16. Macpherson, David A & Hirsch, Barry T, 1995. "Wages and Gender Composition: Why Do Women's Jobs Pay Less?," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 426-71, July.
    17. Welch, Finis, 1981. "Affirmative Action and Its Enforcement," American Economic Review, American Economic Association, vol. 71(2), pages 127-33, May.
    18. Barbezat, Debra A & Hughes, James W, 1990. "Sex Discrimination in Labor Markets: The Role of Statistical Evidence: Comment," American Economic Review, American Economic Association, vol. 80(1), pages 277-86, March.
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