Testing for Employee Discrimination Using Matched Employer-Employee Data: Theory and Evidence

45 Pages Posted: 28 Jul 2003

See all articles by Paul Frijters

Paul Frijters

Queensland University of Technology - School of Economics and Finance

Michael A. Shields

University of Melbourne - Department of Economics; IZA Institute of Labor Economics

Nikolaos Theodoropoulos

University College London - Department of Economics

Stephen Wheatley Price

University of Leicester - Department of Economics; IZA Institute of Labor Economics

Date Written: June 2003

Abstract

In this paper, we directly test Becker's theory of employee discrimination using matched worker-workplace data from Britain. Based on a structural model with individual and firm heterogeneity, we develop and test two predictions. Firstly, if white employees have a taste for discrimination they should report lower levels of job satisfaction the larger the proportion of ethnic minorities at their workplace. Secondly, white employees' wages should also increase with the concentration of ethnic minority co-workers. Both hypotheses are strongly supported for white males in our data, after controlling for human capital and job amenity variables, though not for females. The white male wage premium for working amongst only ethnic minority co-workers, as compared to working only with whites, is about 12%. Neither of these effects operate via realised racial prejudice at the workplace or employees' feelings concerning job security.

Keywords: Employee Discrimination, Compensating Differentials, Structural Estimation, Wages, Job Satisfaction

JEL Classification: J3, J7

Suggested Citation

Frijters, Paul and Shields, Michael A. and Theodoropoulos, Nikolaos and Wheatley Price, Stephen, Testing for Employee Discrimination Using Matched Employer-Employee Data: Theory and Evidence (June 2003). IZA Discussion Paper No. 807. Available at SSRN: https://ssrn.com/abstract=422545

Paul Frijters

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
(07) 3864 9364 (Phone)
(07) 3864 1500 (Fax)

HOME PAGE: http://www.bus.qut.edu.au/paulfrijters/index.jsp

Michael A. Shields (Contact Author)

University of Melbourne - Department of Economics ( email )

Victoria 3010, 3010
Australia
+61 3 8344 4656 (Phone)
+61 3 8344 6899 (Fax)

IZA Institute of Labor Economics

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

Nikolaos Theodoropoulos

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Stephen Wheatley Price

University of Leicester - Department of Economics ( email )

New Building 325
Leicester LE1 7RH
United Kingdom
+0116 252 5645 (Phone)

IZA Institute of Labor Economics

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

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