On the Impact of Anti-Discrimination Legislation.

This paper presents a partial equilibrium model of ethnic or gender pay differentials, in the presence of anti-discrimination policy. Policy consists of legislation allowing workers to take legal action against the discriminating employer. It is shown that legislation on fair recruitment has an unambiguous effect in reducing pay differentials, whereas legislation against unequal pay and unfair dismissal has an ambiguous effect and may in some circumstances even produce the perverse consequence of widening pay differentials in some firms.