Seeing Through Color Blindness: Social Networks as a Mechanism for Discrimination

I study labor markets in which firms both hire via referrals and are race blind or color-blind. I develop an employment model showing that despite initial equality in ability, employment, wages, and network structure, minorities receive disproportionately fewer jobs through referrals and lower expected wages, simply because their social group is smaller. This discriminatory outcome, which I term “social network discrimination,” arises from homophily and falls outside the dominant economics discrimination models, which are taste based and statistical. I calibrate the model using a nationally representative sample of youth networks to estimate the lower bound welfare gap caused by social network discrimination, which also disadvantages black workers. This paper isolates a potential underlying mechanism for inequality, adding to the understanding of labor-market disparities that have been widely studied across the social sciences. In doing so, the paper disproves the proposition that color-blind policies inherently promote individual merit.