Spiraling or self-correcting discrimination : a multi-armed bandit approach

Can workers from social groups of comparable productivities obtain comparable employment opportunities in the long run? We model dynamic hiring and employer learning via a general Poisson multi-armed bandit framework. Breakdown environments that reveal on-the-job mistakes rather than successes give a large advantage to marginally more productive groups. Breakthrough environments, in contrast, guarantee comparable payoffs to comparable groups. This insight is robust to various sources of across-groups heterogeneity, belief misspecification by employers, and varying degrees of labor demand scarcity. Equal access to productivity investment only enhances prior differences across groups.