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Measuring the welfare costs of racial discrimination in the labor market

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  • Almarina Gramozi
  • Theodore Palivos
  • Marios Zachariadis

Abstract

We find that the conditional wage‐gap for non‐whites is negatively related to gross domestic product per worker across the US. To explain this, we develop a model linking unequal access to employment with the wage gap, labor misallocation, and income loss. The presence of underprivileged workers allows inefficient firms to co‐exist with efficient ones and leads to skill misallocation, higher unemployment and lower output. Calibrating the model to match the US, we find a fall in market‐based racial discrimination renders inefficient firms non‐profitable, causing reallocation of labor and a positive effect on income as high as 4 percent when discrimination is eliminated.

Suggested Citation

  • Almarina Gramozi & Theodore Palivos & Marios Zachariadis, 2023. "Measuring the welfare costs of racial discrimination in the labor market," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 232-252, April.
    • Handle: RePEc:bla:ecinqu:v:61:y:2023:i:2:p:232-252
    DOI: 10.1111/ecin.13126
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