Labor market discrimination as an agency cost

Pierre-Guillaume Méon and Ariane Szafarz

No 08-19.RS, DULBEA Working Papers from ULB -- Universite Libre de Bruxelles

Abstract: This paper studies labor market discriminations as an agency problem. It sets up a principal-agent model of a firm, where the manager is a taste discriminator and has to make unobservable hiring decisions that determine the shareholder’s profits because workers differ in skills. The paper shows that performance-based contracts may moderate the manager’s propensity to discriminate, but that they are unlikely to fully eliminate discrimination. Moreover, the model predicts that sectors with high skill leverages discriminate less. Finally, the impacts of unknown taste for discrimination, of a wage gap between groups, and of a diversity premium are investigated.

Keywords: discrimination; agency theory; hiring. (search for similar items in EconPapers)
JEL-codes: D21 J71 M12 M51 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-bec, nep-cta and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published by: ULB, DULBEA

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Working Paper: Labour market discrimination as an agency cost (2008)
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