Do race-based preferences perpetuate discrimination against marginalized ethnic groups?

Race-based preferential policies have been employed in the United States and other countries such as Malaysia, South Africa, Brazil, and India to foster economic development among economically marginalized ethnic groups. This research applies a two-player signaling model to help understand labor-market effects of race-based preferential policies used in college admissions. The model shows that in the context of imperfect information in the labor market, purely race-based forms of preferential policies in college admissions are likely to lead to statistical discrimination by future employers, reducing the equilibrium wage of targeted minority groups for both college graduates and non-college graduates. In addition, average wages of the targeted group remain unchanged in the model, with the targeted group being worse off to the extent that educational signaling is costly. In conclusion, the paper argues that race-base preferences cannot substitute for policies and programs that genuinely address imbalances in college preparation between ethnic groups.