Discrimination in the Labour Market

Greg Leblanc

Canadian Journal of Economics, 1995, vol. 28, issue 3, 702-17

Abstract: Statistical discrimination contracts screen employees based on gender or race. Because the theory entails profit maximization, it represented an improvement over taste-based theories of discrimination. Truly profit-maximizing firms may be able to improve on these contracts, however, by offering contracts that self-select for the productivity-affecting unobservable variable(s). In this case, statistical discrimination is subject to the same criticism as taste-based discrimination--there is an opportunity for profitable entry by nondiscriminators. Results show that, when the risk of a low-productivity worker is sufficiently high, a self-selecting contract often dominates the statistical discrimination contracts.

Date: 1995
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