>unfounded prejudice is unstable in a competitive market for labor.
Only with perfect information. In the absence of straightforward tests to evaluate job applicant quality, discrimination can unfortunately be a stable and rational strategy (albeit morally wrong and illegal). Because of information asymmetries, the employer can use race as a signal to infer lower quality. By rejecting minority candidates, the average quality of their applicant pool increases.
Only with perfect information. In the absence of straightforward tests to evaluate job applicant quality, discrimination can unfortunately be a stable and rational strategy (albeit morally wrong and illegal). Because of information asymmetries, the employer can use race as a signal to infer lower quality. By rejecting minority candidates, the average quality of their applicant pool increases.
See page 494 of this paper for which George Akerlof won the Nobel Prize: http://web.usal.es/~emmam/Docencia/Modelizacion/papers/The%2...
Agreed that banning IQ tests may be misguided, as you point out the solution is to add more information to the market.