The modern corporation as a safe haven for taste-based discrimination: An agency model of hiring decisions |
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Authors: | Pierre-Guillaume Méon Ariane Szafarz |
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Institution: | a Université libre de Bruxelles (ULB), Solvay Brussels School of Economics and Management, Centre Emile Bernheim, Avenue F.D. Roosevelt, 50, CP-114-03, 1050 Bruxelles, Belgiumb Université libre de Bruxelles (ULB), Solvay Brussels School of Economics and Management, Centre Emile Bernheim and CERMi, Avenue F.D. Roosevelt, 50, CP-114-03, 1050 Bruxelles, Belgium |
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Abstract: | This paper proposes a principal-agent model of labour market discrimination. In this model, the firm manager is a taste-based discriminator and has to make unobservable hiring decisions that determine the shareholder's profits, because workers differ in skill. The model 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 a wage gap between groups and of a diversity premium are investigated. |
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Keywords: | J71 D21 M12 M51 |
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