Job Market Signalling, Stereotype Threat, and Counter-Stereotypical Behaviour

We introduce stereotype threat in a multiple-productivity signalling model. Existence of multiple self-fulfilling stereotypes, which can generate statistical discrimination, is more likely if there is less variance in the ability distribution. A low endogenously-correct stereotype about a group forces higher-ability group members to choose a higher-productivity and a higher separating signal, thereby engaging in counter-stereotypical behaviour. This counter-stereotypical behaviour causes the remaining partially-pooling group to have lower average productivity, reinforcing the negative stereotype. The co-existence of stereotype threat and counter-stereotypical behaviour can explain the simultaneity of lower wages and higher education attainment in a group facing labour-market discrimination.