Opportunities Denied, Wages Diminished: Using Search Theory to Translate Audit-Pair Study Findings into Wage Differentials

This article proposes a framework with which to estimate the impact on labor market outcomes implied by audit-pair study findings. I present a search model with discrimination and calibrate the model with experimental data from audit studies of the U.S. labor market and the NLSY79 to estimate the wage and unemployment implications of documented hiring disparity. All simulated results are highly consistent with the hypothesis that hiring discrimination may be an important component of the observed labor market disparity between African American and white workers in the U.S. Additionally, while the simulations only generate a small proportion of the observed gaps in unemployment, it proves to be one of the few models capable of explaining simultaneous wage in unemployment gaps. The most robust finding of the article is that non-trivial wage gaps can result even from the seemingly small differences in hiring rates documented in these studies.