Inherited Discrimination and Inequality

This paper examines the relationship between inequality and discrimination. Using a simple model of competitive signaling, this paper shows that income inequality motivates discrimination against low-income group. It is parents' investment on their children's signaling that interlinks inequality and discrimination and causes them to be inherited by future generations. Because low-income parents are unable to invest as much as high-income parents do, the low-income children inherit their parents' low-income status along with the parents' characteristics (e.g., race). This establishes a high correlation between the income-status and the inheritable parental features of low-income group, enabling discrimination against the characteristics of low-income group. Discrimination induces welfare losses by reducing the opportunities to discover true talents. The findings of this paper imply that lowering income inequality is important to fight discrimination and that an effective means of reducing income inequality is to sever the intergenerational chain of inheriting inequality through parental investment