Nationality Discrimination in the Labor Market: Theory and Test

Reference:

Bodvarsson, O. B. and Sessions, J., 2010. Nationality Discrimination in the Labor Market: Theory and Test. Working Paper. Bath, UK: Department of Economics, University of Bath. (Bath Economics Research Working Papers; 08/10)

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Official URL:

http://www.bath.ac.uk/economics/research/workingpapers.html

Abstract

When immigrants experience “nationality discrimination” in the labor market, ceteris paribus their earnings are lower than native-born workers because they were born abroad. The challenge to testing for nationality discrimination is that the native/immigrant earnings gap will very likely also be influenced by productivity differences driven by incomplete assimilation of immigrants, as well as the possibility of racial or gender discrimination. There is relatively little empirical literature, and virtually no theoretical literature, on this type of discrimination. In this study, a model of nationality discrimination where customer prejudice and native/immigrant productivity differences jointly influence the earnings gap is presented. We derive an extension of Becker’s Market Discrimination Coefficient (MDC), applied to the case of nationality discrimination when there are productivity differences. A number of novel implications are obtained. We find, for example, that the MDC depends upon relative immigrant productivity and relative immigrant labor supply. We test the model on data for hitters and pitchers in Major League Baseball, an industry with a history of immigration, potential for customer discrimination, and clean, detailed micro-data on worker productivities and race. OLS and decomposition methods are used to estimate the extent of discrimination. We find no compelling evidence of discrimination in the hitter group, but evidence of ceteris paribus underpayment of immigrant pitchers. While our test case is for a particular industry, our theoretical model, empirical specifications, and general research design, are quite generalizable to many other labor markets.

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