Competition and the Racial Wage Gap: Testing Becker's Model of Employer Discrimination

57 Pages Posted: 7 Mar 2016

See all articles by Guilherme Hirata

Guilherme Hirata

IDados-Alfa e Beto Instituto

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA); Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics; IZA Institute of Labor Economics

Abstract

According to Becker's (1957) theory of taste-based employer discrimination, pure economic rents are necessary for discrimination to be observed in the labor market. Increased competition and reduced rents in the market for final goods should therefore lead to reduced labor market discrimination. We look at the natural experiment represented by the Brazilian trade liberalization from the early 1990s to study the effect of increased competition in the market for final goods on racial discrimination in the labor market. Changes in tariffs and initial employment structures are used to show that, in locations where there were relatively larger increases in exposure to foreign competition between 1990 and 1995, there were also relatively larger declines in the conditional racial wage gap between 1991 and 2000.As predicted by theory, the initial wage gap and its decline were more pronounced in regions with more employment in concentrated sectors. The effect of increased competition on the racial wage gap was not driven by changes in returns to productive attributes, in the structure of employment, or in other labor market outcomes. We find robust evidence of a negative effect of increased competition in the market for final goods on discrimination in the labor market.

Keywords: discrimination, racial wage gap, competition, labor market, trade reform, Brazil

JEL Classification: J31, J71, J78, F66

Suggested Citation

Hirata, Guilherme and Soares, Rodrigo R., Competition and the Racial Wage Gap: Testing Becker's Model of Employer Discrimination. IZA Discussion Paper No. 9764. Available at SSRN: https://ssrn.com/abstract=2742552

Guilherme Hirata

IDados-Alfa e Beto Instituto

SCS Qd 04 Bloco A 209 room 302
Ed Miner -. South Wing
Brasilia-DF
Brazil

Rodrigo R. Soares (Contact Author)

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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