In this paper, we directly test Becker’s theory of employee discrimination using matched
worker-workplace data from Britain. Based on a structural model with individual and firm
heterogeneity, we develop and test two predictions. Firstly, if white employees have a taste
for discrimination they should report lower levels of job satisfaction the larger the proportion
of ethnic minorities at their workplace. Secondly, white employees’ wages should also
increase with the concentration of ethnic minority co-workers. Both hypotheses are strongly
supported for white males in our data, after controlling for human capital and job amenity
variables, though not for females. The white male wage premium for working amongst only
ethnic minority co-workers, as compared to working only with whites, is about 12%. Neither of
these effects operate via realised racial prejudice at the workplace or employees’ feelings
concerning job security.
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