The dynamic implications of search discrimination

Blacks have both lower employment rates and lower earnings than whites. Further, the earnings gap increases as workers age. This paper focuses on explaining differences in black/white earnings profiles and how government interventions work in a dynamic environment. Three contributions are made. Firstly, multiple equilibria may exist solely because of a coordination failure by firms. Even without taste discrimination, blacks may play no role in their poor labor market outcomes. Secondly, search discrimination leads to economic discrimination against the non-discriminated group (reverse discrimination). Finally, in response to a quota program, whites may find it optimal to subsidize black investment.