Discrimination, technology and unemployment

I study the interaction between discrimination and investment using a directed search model where firms decide the capital intensity of their production technologies before being matched. Discrimination makes some workers cheap to hire. As a consequence, some firms might save on capital costs adopting labour intensive technologies. This framework allows one to reconcile search models with three well-known facts regarding the labour market outcomes of minority workers: low wages, high unemployment and occupational segregation. Furthermore, the model questions the role of equal pay legislation in reducing inequality since removing this restriction, i.e., allowing firms to post type-contingent wages, eliminates the negative effects of discrimination on investment and wages.

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► If some firms discriminate, discriminated workers can be employed at a lower cost.
► Non-discriminating firms will choose less capital intensive technologies.
► Contrarily to previous research, realistic unemployment and wage gaps are obtained.
► Discrimination has no negative effects if equal opportunity legislations are removed.