Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 05-2012: Labour Market Performance Effects of Discrimination and Loss of Skill

Birthe Larsen () and Gisela Waisman
Additional contact information
Birthe Larsen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Porcelænshaven 16A, 1. floor., DK-2000 Frederiksberg, Denmark
Gisela Waisman: Stockholm University

Abstract: We examine the impact of discrimination on labour market performance when workers are subject to a risk of losing skills during the experience of unemployment. Within a search and matching model, we show that all natives and immigrants are affected by discrimination. Discrimination in one sector has positive spillovers, inducing employment increases in the other sector.

Discrimination may induce immigrants to train more or less than natives, depending on the sector where it is present.

Welfare tends to be most negatively affected by discrimination among high- productivity workers.

Keywords: discrimination; unemployment; search and matching; wages

JEL-codes: J15; J31; J61; J64; J71

35 pages, October 15, 2012

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