Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil†

American Economic Review 2021, 111(10): 3418–3457 https://doi.org/10.1257/aer.20181596 Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil By François Gerard, Lorenzo Lagos, Edson Severnini, and David Card* We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also compressed relative to Whites, contributing another 5  percent for that gap. A counterfactual analysis reveals that about two-thirds of the underrepresentation of non-Whites at higher-wage firms is explained by race-neutral skill-based sorting. Non-skill-based sorting and differential wage setting are largest for college-ed- ucated workers, suggesting that the allocative costs of discrimi- natory hiring and pay policies may be relatively large in Brazil. (JEL J15, J24, J31, J41, J46, J71, O15) In many countries around the world non-Whites earn less than Whites. Traditionally,  economic studies of racial pay disparities have built on the frame- work of Becker (1957), who assumed that each worker has a market-determined A growing body of wage that is independent of the choices of any single employer. work, however, suggests that firm-specific hiring and pay policies also contribute to When employers have wage-setting power, the between-group wage differentials. racial pay gap will depend partly on whether higher-paying firms differentially hire * Gerard: Queen Mary University of London and CEPR (email: f.gerard@qmul.ac.uk); Lagos: Brown University and IZA (email: lorenzo_lagos@brown.edu); Severnini: Carnegie Mellon University (Heinz College), IZA, and NBER (email: edsons@andrew.cmu.edu); Card: UC Berkeley and NBER (email: card@berkeley.edu). Esther Duflo was the coeditor for this article. We are grateful to three...