Identification, screening and stereotyping in labor market discrimination

Social-psychological research reveals two opposite ways in which a person can respond to increased feelings of uncertainty in decision-making. First, he (or she) may try to reduce his uncertainty by searching for more specific information. This leads to less stereotyping and discrimination. Second, he may identify more strongly with a salient social group he belongs to (his ingroup, e.g. men). This induces him to rely more on stereotypic perceptions and prejudices, and hence to discriminate more against an outgroup (e.g. women). This paper develops a microeconomic model that integrates both responses in the context of hiring and pay decisions by an employer. The model determines simultaneous equilibrium levels of expenditures on screening of job applicants and ingroup identification. Increasing competition in the product market makes the employer feel more uncertain about his profits, but also raises the opportunity cost of screening expenditures. The latter rise elicits substitution of ingroup identification for screening expenditures, and hence enhances discrimination. Affirmative action has the opposite effect by raising the marginal benefits of screening expenditures. Some experimental and empirical evidence is briefly discussed.microeconomics ;