DP5009 City Structure, Job Search and Labour Discrimination. Theory and Policy Implications

Author(s): Harris Selod, Yves Zenou
Publication Date: April 2005
Keyword(s): affirmative action, employment subsidies, racial preferences, social networks, spatial mismatch
JEL(s): J15, J41, R14
Programme Areas: Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5009

We consider a search-matching model in which black workers are discriminated against and the job arrival rates of all workers depend on social networks as well as distance to jobs. Location choices are mainly driven by the racial preferences of households. There are two possible urban equilibrium and, we show that, under some reasonable condition, all workers are better off in the equilibrium where blacks are close to jobs. We then consider two policies: affirmative action and employment subsidies to the firms that hire black workers. We show that, in cities where black workers reside far away from jobs, the optimal policy is to impose higher quotas or employment subsidies than in cities where they live close to jobs.