The Cost of Work Discrimination: A Market Capture Differential Game Model

Abstract

Discrimination in the workplace can be a source of opportunity costs for firms that desire to enter a new market. In this article, we model how an exogenous technological change introduces both new potential workers in the labor market and, as the economy grows, a new set of consumers for firms to conquer. We then use a differential model to show how the payoff of a firm that discriminates in the labor market loses potential market from this same demographic. Our results imply that anti-discriminatory policies within the firm constitute an important element for the solution of this problem, and that there might be incentives for the firms to apply such policies.