Discrimination and Skill Differences in an Equilibrium Search Model
Audra J. Bowlus
University of Western Ontario - Department of Economics
Tel Aviv University - Eitan Berglas School of Economics; University of Minnesota, Twin Cities - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
CEPR Discussion Paper Series No. 1859
In this paper, we analyze 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 labor 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 employers' preferences is 28% of the whites' productivity level; and c) 53% of firms have a disutility factor in their utility toward blacks.
JEL Classification: J7, J15, J16, J64working papers series
Date posted: November 5, 1998
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