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Employment Inequality, Employment Regulation, and Social Welfare

Author

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  • Borooah, Vani

Abstract

This paper develops a model which explains the unequal employment outcomes of two groups - defined as their, respective, likelihoods of successfully filling job vacancies - in terms of disparities in their access to job networks. This disparity arises because a proportion of vacancies are filled using informal methods so that, as a first step, information about vacancies only becomes available through word-of-mouth; as a second step, appointments are based on the recommendations of existing employees. If society is fragmented, then members of one group will have little or no contact with members of the other group. Therefore, the power to inform and to recommend becomes excessively concentrated in the group that dominates the workforce. In such a situation, the role of fair-employment regulation is to ensure fair access to jobs for all. While this generates equity gains, it could, by raising the costs of hiring and firing, also be accompanied by efficiency losses. Whether social welfare increases or decreases as a result of regulation depends on the relative magnitudes of these gains and losses.

Suggested Citation

  • Borooah, Vani, 2002. "Employment Inequality, Employment Regulation, and Social Welfare," MPRA Paper 20008, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20008
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    File URL: https://mpra.ub.uni-muenchen.de/20008/1/MPRA_paper_20008.pdf
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    References listed on IDEAS

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    1. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162.
    2. Elmslie, Bruce & Sedo, Stanley, 1996. "Discrimination, social psychology, and hysteresis in labor markets," Journal of Economic Psychology, Elsevier, vol. 17(4), pages 465-478, August.
    3. Lewis, W Arthur, 1979. "The Dual Economy Revisited," The Manchester School of Economic & Social Studies, University of Manchester, vol. 47(3), pages 211-229, September.
    4. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
    5. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-661, September.
    6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    7. Anne O. Krueger, 1963. "The Economics of Discrimination," Journal of Political Economy, University of Chicago Press, vol. 71, pages 481-481.
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    Citations

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    Cited by:

    1. Borooah, Vani, 2005. "Public Choice: an Overview," MPRA Paper 19835, University Library of Munich, Germany.

    More about this item

    Keywords

    Employment; Inequality; Welfare;

    JEL classification:

    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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