TY - JOUR

T1 - Strategic gains from discrimination

AU - Lagerlöf, Johan N. M.

PY - 2020/2

Y1 - 2020/2

N2 - According to a classical argument, an employer handicaps herself if basing hiring decisions on factors unrelated to productivity; therefore, discrimination is undermined by competition. This paper, in contrast, argues that being discriminatory can be a commitment device that helps an employer and its rivals to partially segment the labor market, which leads to lower wages and higher profits. Discrimination can thus be an endogenous response to competition. Indeed, the relationship between discrimination and competition can be nonmonotone. Moreover, the logic suggests that a ban on wage discrimination may instead lead to discrimination in hiring. (C) 2019 Elsevier B.V. All rights reserved.

AB - According to a classical argument, an employer handicaps herself if basing hiring decisions on factors unrelated to productivity; therefore, discrimination is undermined by competition. This paper, in contrast, argues that being discriminatory can be a commitment device that helps an employer and its rivals to partially segment the labor market, which leads to lower wages and higher profits. Discrimination can thus be an endogenous response to competition. Indeed, the relationship between discrimination and competition can be nonmonotone. Moreover, the logic suggests that a ban on wage discrimination may instead lead to discrimination in hiring. (C) 2019 Elsevier B.V. All rights reserved.

KW - Discrimination

KW - Competition

KW - Strategic interaction

KW - Market segmentation

KW - SEGMENTATION

KW - DELEGATION

KW - STABILITY

U2 - 10.1016/j.euroecorev.2019.103354

DO - 10.1016/j.euroecorev.2019.103354

M3 - Journal article

VL - 122

JO - European Economic Review

JF - European Economic Review

SN - 0014-2921

M1 - 103354

ER -