Discrimination, Regulations and the Optimal Hiring Process

Abstract

This article provides a theoretical framework for comparing two different hiring practices:  an unpaid competitive internship that is followed by a potential job offer versus a standard series of interviews. After fully characterizing the optimal hiring process, I show that high-ability minorities can be harmed by labour regulations that cause employers to shift towards a hiring process in which they are more likely to discriminate. Furthermore, preventing employers from giving truthful references is shown to exacerbate the obstacles to employment of a community traditionally facing discrimination.