Social Networks as a Mechanism for Discrimination

Chika O. Okafor

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Abstract: I study labor markets in which firms hire via referrals. I develop an employment model showing that--despite initial equality in ability, employment, wages, and network structure--minorities receive fewer jobs through referral and lower expected wages, simply because their social group is smaller. This disparity, termed "social network discrimination," falls outside the dominant economics discrimination models--taste-based and statistical. Social network discrimination can be mitigated by minorities having more social ties or a "stronger-knit" network. I calibrate the model using a nationally-representative U.S. sample and estimate the lower-bound welfare gap caused by social network discrimination at over four percent, disadvantaging black workers.

Date: 2020-06, Revised 2022-02
New Economics Papers: this item is included in nep-net and nep-soc
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