Race, Network Hiring, and Statistical Discrimination

Abstract

Purpose – Research has shown that employers often disfavor racial minorities - particularly African Americans - even when whites and minorities present comparable resumes when applying for jobs. Extant studies have been hard pressed to distinguish between taste-based discrimination where employers' racial animus is the key motivation for their poor treatment of minorities and variants of statistical discrimination where there is no assumption at all of racial animus on the part of the employer. This chapter proposes a test of these theories by observing whether employers use employee referrals as a “cheap” source of information to help assess applicant quality.

Methodology/approach – Unique quantitative data encompassing the entire pool of 987 candidates interviewed by one company in the western United States during a 13-month period are used to test our arguments.

Findings – We find that employers in this setting are making use of the cheap information available to them: Consistent with statistical discrimination theory, minority referrals are more likely to receive a job offer than non-referred minority applicants, and are not disfavored relative to referred whites.

Originality/value of the chapter – Both statistical and taste-based theories of discrimination propose similar observable outcomes (lower rates of disfavored minority hiring). While different mental processes are being invoked by taste-based and statistical discrimination theories, the theories are extremely difficult to distinguish in terms of observable behaviors. Especially for the purpose of designing legal remedies and labor market policies to ameliorate the disparate treatment of minority groups, differentiating between these theories is a high priority.

Keywords: Networks, race, statistical discrimination, hiring

JEL Classification: M51, J70, J71