CAFO Working Papers,
Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics

Abstract: This paper presents a model where workers’beliefs and expectations about discrimination are significant. Identical firms announce vacancies and starting wages and workers apply to the firm. Workers are of two types, b and g, but identical in productivity. Firms do not prefer a particular type of worker over another. There is however a common belief among all workers that type b workers are discriminated against. This causes type b workers to avoid applying for jobs that offer wages perceived to be too high, since such workers believe that they don’t stand a chance against type g workers. In equilibrium some firms announce a job and high wages thereby attracting only type g workers, while others announce with low wages thereby attracting only type b workers.

Keywords: Discrimination; Workers’ beliefs; Directed search

JEL-codes: J60; J70

24 pages, September 25, 2006

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