Competition and Gender Prejudice: Are Discriminatory Employers Doomed to Fail? #146 RUHR

According to Becker’s (1957) famous theory on discrimination, entrepreneurs with a strong prejudice against female workers forgo profi ts by submitting to their tastes. In a competitive market their fi rms lack effi ciency and are therefore forced to leave. We present new empirical evidence for this prediction by studying the survival of startup fi rms in a large longitudinal matched employer-employee data set from Austria. Our results show that fi rms with strong preferences for discrimination, i.e. a low share of female employees relatively to the industry average, have signifi cantly shorter survival rates. This is especially relevant for fi rms starting out with female shares in the lower tail of the distribution. They exit about 18 months earlier than fi rms with a median share of females. We see no diff erences in survival between fi rms at the top of the female share distribution and at the median, though. We further document that highly discriminatory fi rms that manage to survive submit to market powers and increase their female workforce over time. JEL Classifi cation: J16, J71, L25