Discrimination as favoritism: The private benefits and social costs of in-group favoritism in an experimental labor market

Abstract

In this paper, we examine labor market favoritism in a unique laboratory experiment design that can shed light on both the private benefits and spillover costs of employer favoritism (or discrimination). Group identity is induced on subjects such that each laboratory « society » consists of eight individuals each belonging to one of two different identity groups. In some treatments randomly assigned employer-subjects give preference rankings of potential worker-subjects who would make effort choices that impact employer payoffs. Though it is common knowledge that group identity in this environment provides no special productivity information and cannot facilitate communication or otherwise lower costs for the employer, employers preferentially rank in-group members. In such instances, the unemployed workers are aware that an intentional preference ranking resulted in their unemployment. Unemployed workers are allowed to destroy resources in a final stage of the game, which is a simple measure of the spillover effects of favoritism in our design. Though we find evidence that favoritism may privately benefit a firm in terms of higher worker effort, the spillover costs that result highlight a reason to combat favoritism/discrimination. This result also identifies one potential micro-foundation of societal unrest that may link back to labor market opportunity.

The Effect of Group Identity on Hiring Decisions With Incomplete Information

“…However, if workers always send the same message, then messages are uninformative of the worker's ability, and the employer's expected earnings from 6 A commonly-used approach is to ask participants for their preference over paintings by Klee and Kandinsky and then assign them to groups according to their stated tastes (e.g., Chen and Li, 2009;Gioia, 2017;Kranton and Sanders, 2017). Others have used preferences over movie genres (Dickinson et al, 2018), colors (Charness et al, 2007), and poetry (Kranton and Sanders, 2017). not hiring (i.e., e7) exceeds her payoff from hiring (i.e., 1 2 × 5 × e12 = e5).…”

Your Performance Is My Concern: A Perspective-Taking Competition Task Affects ERPs to Opponent’s Outcomes

“…A large number of social psychology studies reported the in-group bias or intergroup discrimination respectively from different aspects, such as, developmental and evolutionary views (Brewer, 1979; Struch and Schwartz, 1989; Van Bavel et al, 2008; Yang et al, 2014; Oestereich et al, 2019). Such in-group bias or out-group discrimination modulates various people’s social behaviors, including both helpful and harmful behaviors (Cikara et al, 2011, 2014; Dickinson et al, 2018).…”

Labor Negotiations, Conflicts, and Arbitration

“…The impact of labor negotiation outcomes may even extend beyond the firm if those not hired harbor resentment that leads to antisocial behaviors. Such impacts represent difficult-to-measure spillover effects of labor negotiations, but recent experiments suggest such effects exist (Dickinson et al 2018).…”