All Things Equal? Social Networks as a Mechanism for Discrimination

Abstract:

I study labor markets in which firms can hire via job referrals. Despite full equality in the initial time period (e.g., equal ability, employment, wages, and network structure), unequal wages and employment still emerge over time between majority and minority workers, due to homophily—the well-documented tendency for people to associate more with others similar to themselves. This inequality can be mitigated by minority workers having more social ties or a “stronger-knit” network. Hence, this paper uncovers a direct mechanism for discriminatory outcomes that neither relies on past inequality nor on discriminatory motives (i.e., neither of the prevailing economic models of taste-based and statistical discrimination). These findings introduce multiple policy implications, including disproving a primary justification for "colorblind" policies—namely disproving the position that such policies are inherently merit-enhancing.
Last updated on 07/01/2020