A Stochastic Model of Discrimination in the Labor Market.

by Stephen J. Carroll, John E. Rolph

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A model of the employment process illustrates the dynamic relationship between white and nonwhite unemployment rates. Both the employee's search for a job and the employer's search for workers are stochastic and modeled as simple Markov processes. Dynamic programming methods are used to find the employer's optimal hiring policy. From an investigation of the interaction between the two search processes, a derivation is given of the steady-state distribution of employment by race over time. Although the model has not been empirically tested, it does suggest probabilistic conjectures regarding relationships among turning points, relative rates of change in employment levels by race, and similar qualitative results. 43 pp. Ref.

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