“The Price of Prejudice” American Economic Journal Morten Størling Hedegaard and Jean-Robert Tyran

Field experiments have been used for more than 40 years to investigate the causes of ethnic discrimination in the workplace (see Riach and Rich 2002 for a survey).1 In so-called correspondence tests (e.g., Bertrand and Mullainathan 2004), pairs of fictitious resumes are submitted to employers by mail. Discrimination is inferred from differential callback or job-offer rates across pairs of workers which are similar in all respects except for ethnicity. This approach has many advantages, but a limitation is that since applicants are equally productive by design, discrimination is free for the discriminator. Correspondence tests may therefore exaggerate the true extent of discrimination (e.g., Heckman and Siegelman 1993). In addition, correspondence tests are silent on how discrimination responds to changes in the price of discrimination because they usually do not vary the cost of choosing one candidate over the other (see Neumark 2012 for a discussion).

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