Can Minorities Escape Wage Discrimination by Forming Firms?

The persistence of wage discrimination raises a number of questions, including the following: if majority-owned firms continue to discriminate against minority workers, is it possible for the minority workers to escape that discrimination by forming a firm? Non-discriminating minority firms could then provide a refuge for other minority workers. In Becker’s classic treatment of discrimination by firms he posits a variation of this idea. He suggests that if the number of jobs at non-discriminating firms is greater than the number of minority workers, then these minority workers will all find their way to and be employed by the non-discriminating firms. In this paper I employ simulations to examine the extent to which minority workers can successfully find employment at non-discriminating minority firms in the presence of labor market frictions. These simulations also demonstrate the importance of access to capital for minority entrepreneurs.