Endogenous Peer Based Discrimination

(Paper by Roberto Rozzi and Luca Sandrini, ZEW)

The paper presented in this ZEW Research Seminar considers a dynamic labor market where employers can either be conformist or rational. There are two types of workers. Employers only observe each worker's type and each type's expected productivity. The authors examine how employers' behavioral rules evolve across steps based on static equilibrium outcomes. Behavioral rules evolve according to a fitness depending on the number of conformists and conformists pay a cognitive cost for considering additional information. They find that the two evolutionary stable states are such that either all employers are rational or all of them are conformist: only the second kind of state produces inequalities. External social pressure, the number of jobs, and the magnitude of the conformity cognitive cost influence the likelihood of a society with only conformist employers. Initially, the authors assume equal remuneration among employers and later demonstrate that their results hold even when worker remuneration differs across employers.