Discrimination and workers' expectations

Abstract

The neoclassical theory of discrimination is almost entirely a demand-side theory. There are very few contributions where workers’ heterogeneity matters, and even fewer that study the possibility that unequal outcomes may arise or persist for reasons attributable to workers’ expectations. This dissertation is aimed at filling this gap, analyzing the role that workers’ expectations may play in explaining the long-run persistence of unequal outcomes that characterize some minorities in the labor market. The first chapter introduces a generalization of the Self-Confirming Equilibrium concept to the case of aggregate observable outcomes, i.e. when players at the end of each round observe also the outcomes of games in which they are not directly involved. Such an extension becomes necessary to characterize the equilibria of a game, like that presented in Chapter 2, where social learning is assumed to be more important than individual outcomes directly observed by the agents. Moreover, aggregate outcomes ensure that Self-Confirming Equilibria do not rely on agents accessing different information. The second chapter presents a model that analyzes the role of minority workers’ expectations of being discriminated against. The model is formalized as a two-stage game of incomplete information in wThich populations of workers and employers are engaged, and where the preferences and beliefs of both sides of the labor market matter. In every repetition of the game played by actors randomly drawn from their populations, three players participate: one employer and two workers, one of whom belongs to a minority group. The employer promotes one (and only one) of the two workers after having observed their effort, which is a function of unobservable taste for work. Crucially, promotions depend via effort on workers’ expectations about the unknown employer’s type, which captures the possible disutility of promoting a minority worker.