Business Administration, the Norwegian Meeting for Labour Economists, Stockholm

We study a search model with employment protection legislation. We show that there exists an equilibrium with discriminatory hiring standards of workers only differing in an observable characteristic determining their type. Even though the firm can observe the workers ’ expected productivity at the hiring stage, it still may condition its hiring standard on group belonging, due to feedback effects of other firm ’ hiring standards. The model predicts higher unemployment rates, stricter hiring standards, and a positive relation between employment protection and relative unemployment rates for discriminated workers