Labor Market Discrimination and Statistical Differences in Unobserved Characteristics of Applicants

Labor market discrimination is a topic of considerable societal and economic relevance and may lead to suboptimal management decisions. Previous research indicates that labor market discrimination against applicants with an ethnic minority background is at least partly explained by employer beliefs about unobserved personality characteristics, such as lower conscientiousness or lower agreeableness. In this preregistered study, I investigate whether and to what extent these beliefs are statistically justified, as predicted by the theory of statistical discrimination (understood as discrimination based on statistically accurate beliefs). To this aim, I test differences in personality characteristics between individuals with an ethnic minority vs. majority background, using data from a large representative sample of the adult population in Germany. Analogously to field experiments showing ethnic discrimination, only individuals who have completed secondary schooling in Germany are considered and the qualification level is held constant between individuals. The results indicate that statistical ethnic differences are mostly insignificant and always estimated to be smaller than the experimentally observed discrimination. Therefore, there is only partial support for statistical discrimination, and the results suggest that mistaken or exaggerated stereotypes might contribute to ethnic discrimination in the labor market.