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Discrimination and Employment Protection

  • Åsa Rosén

    (stockholm University)

  • Steinar Holden

    (Oslo University)

We study a search model with firing cost. We show that there exists an equilibrium with discriminatory hiring standards of worker only differing in an observable characteristic determining their type. Even though the firm can observe the workers' expected productivity at the hiring stage, it still may condition its hiring standard on group belonging, due to feedback effects of other firm' hiring standards. The model predicts higher unemployment rates, stricter hiring standards, longer tenure for discriminated workers and a positive relation between employment protection and relative unemployment rates for discriminated workers.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 350.

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Date of creation: 2009
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Handle: RePEc:red:sed009:350
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