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Racial Discrimination in the U.S. Labor Market: Employment and Wage Differentials by Skill

54 Pages Posted: 24 May 2014  

Daniel Borowczyk-Martins

Copenhagen Business School

Jake Bradley

University of Bristol

Linas Tarasonis

Bank of Lithuania

Abstract

In the US labor market the average black worker is exposed to a lower employment rate and earns a lower wage compared to his white counterpart. Lang and Lehmann (2012) argue that these mean differences mask substantial heterogeneity along the distribution of workers' skill. In particular, they argue that black-white wage and employment gaps are smaller for high-skill workers.In this paper we show that a model of employer taste-based discrimination in a labor market characterized by search frictions and skill complementarities in production can replicate these regularities. We estimate the model with US data using methods of indirect inference. Our quantitative results portray the degree of employer prejudice in the US labor market as being strong and widespread, and provide evidence of an important skill gap between black and white workers. We use the model to undertake a structural decomposition and conclude that discrimination resulting from employer prejudice is quantitatively more important than skill differences to explain wage and employment gaps. In the final section of the paper we conduct a number of counterfactual experiments to assess the effectiveness of different policy approaches aimed at reducing racial differences in labor market outcomes.

Keywords: employment and wage differentials, discrimination, job search

JEL Classification: J31, J64, J71

Suggested Citation

Borowczyk-Martins, Daniel and Bradley, Jake and Tarasonis, Linas, Racial Discrimination in the U.S. Labor Market: Employment and Wage Differentials by Skill. IZA Discussion Paper No. 8176. Available at SSRN: https://ssrn.com/abstract=2441472

Daniel Borowczyk-Martins (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Jake Bradley

University of Bristol

Linas Tarasonis

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

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