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Statistical Discrimination in a Competitive Labor Market

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  • Jonathan B. Berk

Abstract

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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  • Jonathan B. Berk, 1999. "Statistical Discrimination in a Competitive Labor Market," NBER Working Papers 6871, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6871
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    Cited by:

    1. Danielle Lewis & Dek Terrell, 2001. "Experience, Tenure, and the Perceptions of Employers," Southern Economic Journal, John Wiley & Sons, vol. 67(3), pages 578-597, January.
    2. Song Han, 2004. "Discrimination in Lending: Theory and Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 29(1), pages 5-46, July.
    3. Pinkston, Joshua C., 2003. "Screening discrimination and the determinants of wages," Labour Economics, Elsevier, vol. 10(6), pages 643-658, December.

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