Faculty of Economics and Business Administration Publications Database

Equal-treatment policy in a random search model with taste discrimination

Lu, Jun
Volume: 17
Pages: 699 - 709
Month: August
ISSN-Print: 0927-5371
Link External Source: Online Version
Year: 2010
Keywords: Search model; Wage dispersion; Discrimination; Equal-pay policy

We consider a search model of the labor market with two types of equally productive workers and two types of firms, discriminators and non-discriminators. Without policy intervention, there is wage dispersion between and within the two worker groups, but all wage differences become negligible when the taste for discrimination is small. We analyze the effect of an equal-pay policy, both in combination with affirmative action and without. When equal opportunity of hiring cannot be enforced, wage dispersion increases and wages for minority workers fall substantially relative to laissez faire. Sometimes also the wage gap between worker groups widens in response to the policy.