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Discrimination and Skill Differences in an Equilibrium Search Model

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  • Bowlus, Audra J
  • Eckstein, Zvi

Abstract

In this paper, we analyse an equilibrium search model with three sources for wage and unemployment differentials among workers with the same (observed) human capital but different appearance (race): unobserved productivity (skill), search intensities and discrimination (Becker 1957) due to an appearance-based employer disutility factor. Because these sources affect the earnings distributions differently, empirical identification of these potential sources for the explanation of wage and unemployment differentials is possible. We show that the structural parameters of the model, including the firm’s disutility from certain workers, are identifiable using standard labour market survey data. We demonstrate identification using data from the National Longitudinal Survey of Youth. Estimation of these parameters by matching moments from a sample of black and white high school graduates implies: a) blacks have a 9% lower productivity level than whites; b) the disutility factor in employer’s preferences is 28% of the white’s productivity level; and c) 53% of firms have a disutility factor in their utility toward blacks.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1859.

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Date of creation: Apr 1998
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Handle: RePEc:cpr:ceprdp:1859

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Keywords: Discrimination; equilibrium search; race; Unemployment;

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  1. Coate, S. & Loury, G.C., 1992. "Will Affirmative Action Policies Eliminate Negative Stereotypes?," Papers, Boston University - Department of Economics 3, Boston University - Department of Economics.
  2. Bowlus, Audra J & Kiefer, Nicholas M & Neumann, George R, 1995. "Estimation of Equilibrium Wage Distributions with Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(S), pages S119-31, Suppl. De.
  3. Bowlus, Audra J, 1997. "A Search Interpretation of Male-Female Wage Differentials," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(4), pages 625-57, October.
  4. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 869-95, October.
  5. Zvi Eckstein & Kenneth I. Wolpin, 1999. "Estimating The Effect Of Racial Discrimination On First Job Wage Offers," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 384-392, August.
  6. John J. Donohue III & James Heckman, 1991. "Continuous Versus Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks," NBER Working Papers 3894, National Bureau of Economic Research, Inc.
  7. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, Econometric Society, vol. 66(5), pages 1183-1222, September.
  8. Hellerstein, Judith K & Neumark, David, 1999. "Sex, Wages, and Productivity: An Empirical Analysis of Israeli Firm-Level Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 95-123, February.
  9. Sattinger, Michael, 1998. "Statistical Discrimination with Employment Criteria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 205-37, February.
  10. Black, Dan A, 1995. "Discrimination in an Equilibrium Search Model," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 13(2), pages 309-33, April.
  11. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. C, Bontemps & Jean-Marc Robin & G, Van Den Berg, 1997. "Equilibrium Search with Productivity Dispersion : Theory and Estimation," Working Papers, Centre de Recherche en Economie et Statistique 97-09, Centre de Recherche en Economie et Statistique.
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