IZA DP No. 10291: A Short Note on Discrimination and Favoritism in the Labor Market
published in: BE Journal of Theoretical Economics, 2017, 17(1)
We extend Becker's model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms.