Statistical Discrimination with Employment Criteria

This paper develops the theory of statistical discrimination in the form of unequal employment criteria and interviews. Workers differ by imperfectly observed `quit rate.' Profit maximization leads firms to set stricter employment criteria or interview fewer workers from the group with a greater proportion of high-quit-rate workers. The theory can explain unemployment differences between groups and the total exclusion of a group from a labor market. Although statistical discrimination constitutes economic discrimination according to a criterion of harm to a group, it may or may not be efficient because of the presence of externalities.