Faculty of Economics and Business Administration Publications Database

Does Equal Pay Legislation Reduce Labour Market Inequality

Volume: 111
Pages: 51 - 71
Month: March
Link External Source: Online Version
Year: 2009
Keywords: Discrimination; Monopsonistic competition; Equal-pay legislation

This paper considers a labour market model of monopsonistic competition with taste-based discrimination against minority workers to study the effect of equal pay legislation on labour market inequality. When the taste for discrimination is small or competition is weak, the policy removes job segregation and the wage gap completely. However, with a bigger taste for discrimination or stronger competition, equal pay legislation leads to more job segregation, and sometimes minority workers end up earning less than before. Profits of discriminating firms might increase, and discrimination can persist in the long run, although it would have disappeared without the policy. Copyright © The editors of the "Scandinavian Journal of Economics" 2009 .