Abstract
This paper studies the extent, sources and consequences of customer discrimination against Arab workers in the Israeli market for labor-intensive services. Relying on surveys, field data and a natural experiment, we show that: (1) a large share of Jewish customers prefer to receive labor-intensive services from firms employing Jewish rather than Arab workers; (2) these preferences are associated with “statistical” considerations (in particular concerns for personal safety); (3) firms employing Arab workers charge lower service prices than those employing only Jews; and (4) customer preferences affect firms’ hiring decisions. The results are consistent with a modified version of Becker’s customer discrimination model.
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