Labor market power amplifies discrimination against immigrants

The research distinguishes between labor market and product market power, isolating their respective roles in perpetuating discrimination.

Leveraging job displacements from mass layoffs and firm closures as exogenous job search triggers, the study tracks post-displacement outcomes for exactly matched native-immigrant worker pairs.

These pairs held identical jobs, wages, and tenure prior to displacement.

By comparing outcomes across labor markets with varying employer concentration, the authors identify a causal effect: wage and employment discrimination against non-Western immigrants is amplified in concentrated labor markets and largely disappears in competitive ones.

Product market power, however, shows no independent effect on discriminatory outcomes, supporting the theory that wage-setting power is crucial for such practices.

The paper highlights that observed wage and employment gaps fade with sustained employer-immigrant interactions, consistent with belief-based discrimination and employer learning.

This suggests that discrimination is not static but rather influenced by market structure and firm-level dynamics.

The findings challenge traditional views that primarily link discrimination to product market competition, emphasizing instead the critical role of labor market power.

This distinction is particularly relevant given rising employer labor market concentration and declining worker bargaining power, underscoring the need to update economic theories and policy designs to address the specific mechanisms of discrimination in modern labor markets.