Occupational Segregation in a Roy Model with Composition Preferences

We propose a model of labor market sector self-selection that combinescomparative advantage, as in the Roy model, and sector composition preference.Two groups choose between two sectors based on heterogeneous potential incomesand group compositions in each sector. Potential incomes incorporate group specifichuman capital accumulation and wage discrimination. Composition preferences areinterpreted as reflecting group specific amenity preferences as well as homophily andaversion to minority status. We show that occupational segregation is amplified bythe composition preferences and we highlight a resulting tension between redistribution and diversity. The model also exhibits tipping from extreme compositionsto more balanced ones. Tipping occurs when a small nudge, associated with affirmative action, pushes the system to a very different equilibrium, and when the setof equilibria changes abruptly when a parameter governing the relative importanceof pecuniary and composition preferences crosses a threshold