A Short-term Intervention for Long-term Fairness in the Labor Market

TL;DR

This paper proposes a dynamic model of the labor market showing that short-term fairness interventions, like a Temporary Labor Market, can improve long-term racial equity and efficiency in hiring outcomes.

Contribution

It introduces a dual labor market model with a temporary fairness-based intervention that can lead to better long-term fairness and efficiency than traditional discriminatory or group-blind strategies.

Findings

Fairness interventions can induce Pareto improvements in labor market equilibria.

Asymmetric outcomes are reinforced by divergent access to resources and investments.

Temporary interventions can have lasting impacts on group reputations and disparities.

Abstract

The persistence of racial inequality in the U.S. labor market against a general backdrop of formal equality of opportunity is a troubling phenomenon that has significant ramifications on the design of hiring policies. In this paper, we show that current group disparate outcomes may be immovable even when hiring decisions are bound by an input-output notion of "individual fairness." Instead, we construct a dynamic reputational model of the labor market that illustrates the reinforcing nature of asymmetric outcomes resulting from groups' divergent accesses to resources and as a result, investment choices. To address these disparities, we adopt a dual labor market composed of a Temporary Labor Market (TLM), in which firms' hiring strategies are constrained to ensure statistical parity of workers granted entry into the pipeline, and a Permanent Labor Market (PLM), in which firms hire top performers as desired. Individual worker reputations produce externalities for their group; the corresponding feedback loop raises the collective reputation of the initially disadvantaged group via a TLM fairness intervention that need not be permanent. We show that such a restriction on hiring practices induces an equilibrium that, under particular market conditions, Pareto-dominates those arising from strategies that statistically discriminate or employ a "group-blind" criterion. The enduring nature of equilibria that are both inequitable and Pareto suboptimal suggests that fairness interventions beyond procedural checks of hiring decisions will be of critical importance in a world where machines play a greater role in the employment process.