Affirmative action in the presence of income heterogeneity

We examine affirmative action, class-based (CAA), as well as identity-based (IAA), in an economy with income heterogeneity and diverse identity groups. With CAA there exists a unique colour-blind equilibrium where assignment to skilled jobs depends on class, but not on identity. Whereas with IAA, there is a unique equilibrium that exhibits patronisation, i.e. black workers of both income classes face lower standards relative to their white counterparts. Comparing CAA with IAA, poor white workers prefer CAA, which ‘favours’ them, over IAA which does not, with rich black workers preferring IAA for a similar reason. Interestingly, whenever the proportion of black workers equal that of the poor, poor black workers who are helped by both forms of affirmative action prefer CAA, whereas rich white workers who are hurt by both, prefer IAA. We also examine the case where these proportions differ.