Discrimination in the equilibrium search model with wage-tenure contracts

This paper develops a discrimination search model with wage-tenure contracts to study race/gender differences in labor market outcomes. We find that based on the model: first, minority workers have a higher unemployment rate and a longer duration of unemployment; second, non-discriminating firms make higher profits than discriminating firms; third, the lowest acceptable wage for a minority worker is greater than that for a majority worker while the highest expected wage of a minority worker is lower; fourth, generally, on average minority workers earn less than majority workers and their wage increases more slowly than their counterparts’. In addition, our estimates show that productivity differences between blacks and whites (men and women) are 3% of whites (men’s) productivity, while 91% of firms are prejudiced towards black workers and 93% towards female workers. The distaste they hold toward blacks is about 70% of the productivity of whites and towards women it is 95% of male productivity.