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One of a series of reports exploring the sources of black/white income differentials. Employment quotas--affirmative action in the extreme--are used as an analytical device to derive a priori notions of the effects of government attempts to reduce employment discrimination. When rigorously enforced, employment quotas create economic shortages of workers designated by quotas that otherwise would not exist. Such quotas generate wage premiums for those the quota forces to be in short supply, and, concurrently, they create rationing problems. This report explores in depth only one solution to the rationing problem, but sketches qualitative implications of other alternatives. The solution consists of skill bumping or promoting unskilled minority workers to skilled job classes. The author concludes that quota effects without skill bumping--when quotas are rigorously enforced and rationing problems are not resolved--can differ radically from effects of quotas with skill bumping. (See also R-1666.)

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