Discrimination in the Labor Market: The Curse of Competition between Workers

Tinbergen Institute Discussion Paper No. 11-174/1

44 Pages Posted: 12 Dec 2011

See all articles by Thomas de Haan

Thomas de Haan

University of Amsterdam - Faculty of Economics and Business (FEB)

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB); Tinbergen Institute

Date Written: December 8, 2011

Abstract

In the labor market, statistical discrimination occurs when employers' beliefs about workers' behavior induce different groups of workers to invest at different rates in their education. Thus, even though groups may be identical ex-ante, the beliefs of the employers are self-fulfilling. Theoretically and in an experiment, we investigate under what circumstances statistical discrimination occurs. We confirm the experimental results of Fryer, Goeree and Holt (2005) who do not find systematic evidence for statistical discrimination in the standard no-competition setup of Coate and Loury (1993). When we introduce competition between workers of different groups, the non-discrimination equilibrium ceases to be stable. In line with this theoretical observation, we find systematic discrimination in the experimental treatment with competition. Nevertheless, a substantial minority of the employers refuses to discriminate even when it is in their best interest to do so. A refined model that allows a fraction of the employers to remain color blind organizes the main patterns in the data.

Keywords: statistical discrimination, labor market, competition, experiment

JEL Classification: J71, D82, C91

Suggested Citation

de Haan, Thomas and Offerman, Theo and Sloof, Randolph, Discrimination in the Labor Market: The Curse of Competition between Workers (December 8, 2011). Tinbergen Institute Discussion Paper No. 11-174/1. Available at SSRN: https://ssrn.com/abstract=1971154 or http://dx.doi.org/10.2139/ssrn.1971154

Thomas De Haan (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 5241 (Phone)
+31 20 525 4310 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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