NBER WORKING PAPER SERIES EXPERIMENTAL RESEARCH ON LABOR MARKET DISCRIMINATION David Neumark Working Paper 22022 http://www.nber.org/papers/w22022 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2016 I am grateful to Stijn Baert, Marc Bendick, Lieselotte Blommaert, Steven Durlauf, Peter Kuhn, Matt Notowidigdo, Dan-Olof Rooth, Devah Pager, David Phillips, Patrick Button, Bradley Ruffle, Doris Weichselbaumer, Uri Zak, and anonymous referees for helpful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2016 by David Neumark. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Experimental Research on Labor Market Discrimination David Neumark NBER Working Paper No. 22022 February 2016, Revised August 2016 JEL No. J1,J7,K31 ABSTRACT Understanding whether labor market discrimination explains inferior labor market outcomes for many groups has drawn the attention of labor economists for decades – at least since the publication of Gary Becker’s The Economics of Discrimination in 1957. The decades of research on discrimination in labor markets began with a regression-based “decomposition” approach, asking whether raw wage or earnings differences between groups – which might constitute prima facie evidence of discrimination – were in fact attributable to other productivity-related factors. Subsequent research – responding in large part to limitations of the regression-based approach – moved on to other approaches, such as using firm-level data to estimate both marginal productivity and wage differentials. In recent years, however, there has been substantial growth in experimental research on labor market discrimination – although the earliest experiments were done decades ago. Some experimental research on labor market discrimination takes place in the lab. But far more of it is done in the field, which makes this particular area of experimental research unique relative to the explosion of experimental economic research more generally. This paper surveys the full range of experimental literature on labor market discrimination, places it in the context of the broader research literature on labor market discrimination, discusses the experimental literature from many different perspectives (empirical, theoretical, and policy), and reviews both what this literature has taught us thus far, and what remains to be done. David Neumark Department of Economics University of California at Irvine 3151 Social Science Plaza Irvine, CA 92697 and NBER [email protected] 1. Introduction Understanding whether labor market discrimination explains inferior labor market outcomes for many groups has drawn the attention of labor economists for decades – at least since the publication of Gary Becker’s The Economics of Discrimination in 1957. The question is of obvious importance for public policy, as the answer can help policymakers determine whether (and perhaps how much) to emphasize efforts to combat discrimination in trying to bring about greater equality between racial and ethnic groups and between men and women, and in trying to improve the circumstances of other groups that suffer economic disadvantages, such as the disabled. The decades of research on discrimination in labor markets began with a regression-based “decomposition” approach, asking whether raw wage or earnings differences between groups – which might constitute prima facie evidence of discrimination – were in fact attributable to other productivity- related factors. Subsequent research – responding in large part to limitations of the regression-based approach – moved on to other approaches, such as using firm-level data to estimate both marginal productivity and wage differentials. In recent years, however, there has been substantial growth in experimental research on labor market discrimination – although the earliest experiments were done decades ago. The growth in the experimental research on discrimination likely in part reflects the growth of experimental research in economics generally. However, it is also a specific response to continuing challenges in drawing definitive conclusions from non-experimental research about the role of labor market discrimination. Some experimental research on labor market discrimination takes place in the lab. But far more of it is done in the field, which makes this particular area of experimental research unique relative to the explosion of experimental economic research more generally. My goal in this survey is to cover the full range of experimental literature on labor market discrimination, to place it in the context of the broader research literature on labor market discrimination, to discuss the experimental literature from many different perspectives (empirical, theoretical, and policy), and to review what this literature has taught us thus far about the existence of discrimination, which groups 1 it affects, and many other questions – as well as what remains to be done. Moreover, one point of emphasis is summarizing and evaluating the evidence from many recent experimental studies (and some earlier ones) that try to determine the nature of discrimination – whether taste-based, statistical, or implicit. The distinction is important for policy, and recent research has been creative in trying to augment experimental studies with tests for the nature of discrimination. I suggest that the tests to this point are not very convincing, but also discuss how the studies implementing them have pointed the way to how researchers might more convincingly conduct such tests. There are points of overlap with other recent research reviews. Anderson et al. (2006) provide a brief review of laboratory experiments on discrimination covering a small set of studies on race or ethnicity, excluding studies that ask subjects to make decisions about fictitious workers. Pager (2007) provides an overview of a small number of field experiments of race discrimination, focusing on differences between the clear evidence of race discrimination from these studies and the suggestion from some analyses of secondary data that race no longer matters much in labor markets. Riach and Rich (2002) and Rich (2014) provide summaries of many field experiments on discrimination in labor markets; the thoroughness of these reviews enables me to avoid a detailed cataloging of results from many studies, and instead to discuss experimental research on labor market discrimination in the context of the broader literature and debates about discrimination, to focus to some extent on methods, and to delve into what I view as the most important issues that these studies confront or still have to confront.1 In addition, there has been a large number of experimental studies done in the last year or two, which figure prominently in some parts of this review. Clearly, these other reviews can be usefully read along with this survey to get an even fuller overview and understanding of what economists have learned and still might learn from 1 Two reviews published in this journal are further afield, yet related. Harrison and List (2004) provide a general review of field experiments, focused largely on defining a typology of experiments, highlighting what they can teach us in comparison to other kinds of studies, and illustrating the kinds of questions they can answer. There is little overlap although one section of their paper has a few references to audit or correspondence studies of discrimination. Lang and Lehmann (2012) provide what is largely a survey of theoretical models of race discrimination, with some emphasis on drawing empirical implications. Again, the overlap is minor, although their discussion connects with the material I discuss on distinguishing between taste and statistical discrimination. In addition, there is a brief discussion of audit/correspondence studies that touches on some of the points I cover in detail. 2 experimental research on labor market discrimination. 2. The Facts We Are Trying to Understand The raw data that motivate most of the research on discrimination are generally in the direction consistent with discrimination – e.g., lower pay for groups thought to experience discrimination in the labor market. But untangling whether discrimination in fact generates these differences is difficult – which explains the explosion of experimental research on labor market discrimination. Here I briefly describe many of the stylized facts that underlie the discrimination literature, drawing on other work. I defer until Section 4 discussion of non-experimental work testing discriminatory versus non-discriminatory explanations of these differences, except to touch on some simple partial correlations when available. The experimental research focuses on hiring, and thus might be thought of as most relevant for understanding group differences in employment and unemployment. However, the segregation evidence for women discussed below shows that hiring discrimination may also lead to lower earnings. Moreover, models show that discrimination in hiring can lead directly to lower earnings for groups that experience