A tradable employment quota

• A tradable employment quota is proposed as an alternative affirmative action policy
• Firms need to purchase permits to employ men
• A model of a search and matching labor market and a permit market is developed
• Effects of a tradable permits policy on wages, employment, and welfare are analyzed
• A permit solution increases welfare compared to a fixed employment quota

Discrimination of women in the labor market requires appropriate policy interventions. Affirmative action policies typically advocate the introduction of an employment quota uniformly applied to all firms. In a heterogeneous labor market such a policy may yield avoidable welfare losses. We propose a tradable employment quota showing its effects on wages, employment, and welfare in a labor market with search frictions and taste discrimination. A tradable employment quota appears to be a viable alternative yielding superior labor market outcomes.