An analysis of the effect of affirmative action enforcement on lender behavior

Historically minority workers have been underrepresented in the higher-skilled, higher-paying occupations. Government mandates, such as affirmative action, can, under some conditions, change that circumstance, but market efficiencies are often sacrificed. Though there are efficiency losses in the labor market because of the government action, other markets where group discrimination exists may be positively affected. Employing a search model, the effect of affirmative action on black employment and the effect of black employment on black mortgage lending are considered. Affirmative action enforcement is found to increase black employment at lenders, and increases in black employment in the higher-skilled occupations are associated with increases in the likelihood of black mortgage loan approval. No association is found, however, between increases in black employment resulting from the government's enforcement of affirmative action and increases in the likelihood of black mortgage loan approval.