Search Discrimination, Human Capital Accumulation, and Intergenerational Mobility

Unequal outcomes for blacks and whites include earnings inequality, which increases with age, and differences in unemployment rates. I develop a matching model with search discrimination and human capital accumulation. Multiple equilibria exist, one with low unemployment rates and steep earnings profiles and one with high unemployment rates and flat earnings profiles. Hence, two groups of workers that differ on an observable, exogenous characteristic (say, race) can be in two different equilibria. In the high unemployment equilibrium, less vacancies are posted leading to the concept of search discrimination. A quota system can remove the discriminatory outcomes. However, if parents' investment decisions affect the investment decisions of their children, policies which remove the search discrimination through a quota system still lead to unequal results in the short run. In this case, whites may want to subsidize black investment as black investment improves the labor market outcomes for whites.