The Modern Corporation as a Safe Haven for Taste-Based Discrimination: An Agency Model of Hiring Decisions
Labour Economics, Vol. 18, No. 4, pp. 487–497, 2011
Posted: 22 Dec 2010 Last revised: 29 Aug 2011
Date Written: October 1, 2010
This paper proposes a principal-agent model of labour market discrimination. In this model, the firm manager is a taste-based discriminator and has to make unobservable hiring decisions that determine the shareholder’s profits, because workers differ in skill. The model shows that performance-based contracts may moderate the manager’s propensity to discriminate, but that they are unlikely to fully eliminate discrimination. Moreover, the model predicts that sectors with high skill leverages discriminate less. Finally, the impacts of a wage gap between groups and of a diversity premium are investigated.
Keywords: discrimination, agency theory, hiring
JEL Classification: J71, D21, M12, M51
Suggested Citation: Suggested Citation