Inequality and Race: Models and Policy

Abstract

Race and ethnicity play a central role in understanding the structure of inequality in the United States. In this paper, we focus on the economic chasm between black and white America and on what economic theory can contribute to our understanding of both inequality and the design of effective policy. We review recent models of labor market discrimination and the intergenerational transmission of inequality. Our main conclusions are: 1) Modern theories of statistical discrimination and of human capital investment in a social context provide support for activist government policies to combat racial inequality; and 2) Not all policies that appear to be equity-enhancing will in fact have positive effects.

JEL Classification: J71