Complementary Bias: A Model of Two-Sided Statistical Discrimination

50 Pages Posted: 18 Sep 2017

See all articles by Ashley Craig

Ashley Craig

University of Michigan at Ann Arbor - Department of Economics; Harvard University

Roland G. Fryer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; University of Chicago

Date Written: September 2017

Abstract

We introduce a model of two-sided statistical discrimination in which worker and firm beliefs are complementary. Firms try to infer whether workers have made investments required for them to be productive, and simultaneously, workers try to deduce whether firms have made investments necessary for them to thrive. When multiple equilibria exist, group differences can be generated and sustained by either side of the interaction – workers or firms. Strategic complementarity complicates both empirical analysis designed to detect discrimination and policy meant to alleviate it. Affirmative action is much less effective than in traditional statistical discrimination models. More generally, we demonstrate the futility of one-sided policies to correct gender and racial disparities. We analyze a two-sided version of “investment insurance” – a policy in which the government (after observing a noisy version of the employer’s signal) offers to hire any worker who it believes to be qualified and whom the employer does not offer a job – and show that in our model it (weakly) dominates any alternative. The paper concludes by proposing a way to identify statistical discrimination when beliefs are complements.

Suggested Citation

Craig, Ashley and Fryer, Roland G., Complementary Bias: A Model of Two-Sided Statistical Discrimination (September 2017). NBER Working Paper No. w23811, Available at SSRN: https://ssrn.com/abstract=3038621

Ashley Craig (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Ave
238 Lorch Hall
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://www.ashleycraig.com

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States

HOME PAGE: http://scholar.harvard.edu/ashley-craig

Roland G. Fryer

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

American Bar Foundation

750 N. Lake Shore Drive
Chicago, IL 60611
United States

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
8
Abstract Views
132
PlumX Metrics