Discrimination Theory, Labor Turnover, and Racial Unemployment Differentials

This paper examines theoretically and empirically the feedback from racial wage differences to unemployment differentials among experienced workers. Although the received theory predicts that the removal of racial wage differentials will increase the relative unemployment of blacks, this conclusion rests on a demand-oriented analysis of discrimination which omits the effect of market discrimination on racial differences in quit behavior, movements between market and nonmarket activity, and related unemployment. The empirical work in the paper analyzes turnover flows and the probability of incurring unemployment, conditional on turnover by race. In clarifying the role of racial wage differentials on supply behavior, the results challenge the traditional interpretation of the effect of wage discrimination.