Labor Market Performance Effects of Discrimination and Loss of Skill

Abstract

We examine the impact of discrimination on labor market performance when workers are subject to a risk of losing skills during an unemployment experience. Within a search and matching framework, we show that both natives and immigrants are affected by discrimination. Discrimination in one sector has positive spillovers, inducing employment to increase in the other sector and the effect on labor market performance therefore depends on whether discrimination is present in only one sector or in both. Discrimination may induce workers to train more or less than natives after having lost their skills, dependent upon in which sector there is discrimination. Net output tends to be most negatively affected by discrimination among high‐skilled workers. (JEL J15, J31, J61, J64, J71)

Investigating Labor Market Discrimination in Romania

“…In the United States, research has established quite clearly the persistence of vulnerabilities and inequalities in employment, mobility, wages and dismissals for workers belonging to minorities, despite the existence of civil rights protection for over 50 years [21]. The impact of discrimination on immigrant workers was studied by Larsen and Waisman [22] using a search and wage-bargaining model, their results indicating high unemployment rates, lower wages, and lower productivity jobs among immigrants in the US. Wilson and Rodgers [23] analyzed the black-white earning differentials taking into account several socio-demographic control variables like age, gender, education, or residency and observed that discrimination explains an important part of the wage gap.…”