Department of Economics, UCSD

This paper attempts to understand the forces that have lead to persistent racial wage inequality by developing a dynamic model of statistical discrimination that accounts for the transmission of earnings across generations. The parameters of this model are then estimated using data from the 1970 and 1990 U.S. Census. The results indicate that racial disparities in the quality of information that firms receive about worker productivity are the primary cause of racial wage inequality in 1990. The results also indicate that neither the persistence of income across generations nor the presence of coordination failures explains a sizable fraction of ongoing inequality.