Suppose that the labor market is competitive and there are a total of 1,000 black workers and 1,000 white workers (who each supply their labor in elastically). Both black and white workers are equally productive, having constant individual dollar productivities of $180. There are a total of 2,500 jobs. Let d denote the coefficient of discrimination, and let V(d') denote the number of jobs for which d?d . Finally, assume every employer offers one job each.
a) What is the labor market outcome in the absence of any discrimination, i.e. d = 0 for all employers?
b) Assume instead that V(d')= 500+100 d'. How many unprejudiced job openings are there? What is the most prejudiced firm's coefficient of discrimination? How prejudiced is the median employer?
c) What is the equilibrium wage of white workers?
d) Characterize the labor market equilibrium for black workers. Is there discrimination against them?
e) Comment on the equilibrium marginal employer's prejudice when compared with the prejudice of the median firm. [The marginal employer is the one who is indifferent between hiring blacks and whites given the equilibrium relative wages of blacks and whites in the market.]