The Power to Discriminate

This paper examines the relationship between labor market power and employer discrimination, providing new causal evidence on when and where discriminatory outcomes arise. We leverage job displacements from mass layoffs and firm closures as a source of exogenous job search and combine this with an exact matching approach. We compare native–immigrant worker pairs who held the same job at the same firm, in the same occupation, industry, location, and wage prior to displacement. By tracking post-displacement outcomes across labor markets with differing levels of employer concentration, we identify the causal effect of labor market power on discriminatory behavior. We document four main findings. First, wage and employment discrimination against immigrants is substantial. Second, discrimination is amplified in concentrated labor markets and largely absent in highly competitive ones. Third, product market power has no independent effect, consistent with the idea that wage-setting power is necessary for discriminatory outcomes. Fourth, observed gaps fade with sustained employer–immigrant interactions, consistent with belief-based discrimination and employer learning. Together, these findings show that discrimination is not fixed, but shaped by market structure and firm-level dynamics.