COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Post Office Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 708R

"Job Discrimination, Market Forces and the Invisibility Hypothesis"

Paul R. Milgrom

1985

The Invisibility Hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers, but that promotion enhances visibility and alleviates this problem. Then, at a competitive labor market equilibrium, firms profit by hiding talented disadvantaged workers in low level jobs. Consequently, those workers are paid less on average and promoted less often than others with the same education and ability. As a result of the inefficient and discriminatory wage and promotion policies, disadvantaged workers experience lower returns to investments in human capital than other workers.