Discrimination in the Equilibrium Search Model with Wage-Tenure Contracts

Zheng Fang and Christos Sakellariou

MPRA Paper from University Library of Munich, Germany

Abstract: We extend the Burdett and Coles (2003) search model with wage-tenure contracts to two types of workers and firms and derive the equilibrium earnings distributions for both types of workers, by means of which we succeed in predicting many stylized facts found in empirics. For example, we find that at the same wage level, majority workers almost always experience a faster wage increase than the minority workers; minority workers have a higher unemployment rate; discriminating firms make lower profit than non-discriminating firms and offers to minority workers by non-discriminating firms are consistently superior to those provided by discriminating firms etc. Besides, we find a similar result to the classical discrimination theory that the average wage of the majority workers, though higher in most cases, can be smaller than their counterpart’s wage when the fraction of discriminating firms is small and the degree of recruiting discrimination and disutility are mild. We also show that in a special case of CRRA utility function with the coefficient of relative risk aversion approaching infinity, our model degenerates to Bowlus and Eckstein (2002).

Keywords: discrimination; wage gap; equilibrium search; wage-tenure (search for similar items in EconPapers)
JEL-codes: J31 J41 J71 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mic
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https://mpra.ub.uni-muenchen.de/27515/1/MPRA_paper_27515.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/32859/1/MPRA_paper_32859.pdf revised version (application/pdf)

Related works:
Journal Article: Discrimination in the Equilibrium Search Model with Wage-Tenure Contracts (2013)
Working Paper: Discrimination in the Equilibrium Search Model with Wage-Tenure Contracts (2010)
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