Education and Labor Market Discrimination

1467 Models of statistical discrimination often imply that black Americans—or others suffering from discrimination—invest less in themselves than otherwise comparable whites do, because blacks receive a lower return from investment in human capital than whites. The critical assumption underlying these models is that the market receives imperfect information about productivity and no direct information about investments in human capital (see, for example, Shelly J. Lundberg and Richard Startz 1983; Stephen Coate and Glenn C. Loury 1993). Although many humancapital investments are undoubtedly unobservable, others, such as educational attainment, are readily observed. Observable investments can signal productivity as in Michael A. Spence (1973), and the value of the signal will be greater, the less reliable is the direct observation of productivity by employers. Moreover, evidence suggests that employers find it more difficult to evaluate black job candidates than to evaluate white candidates. Therefore, when observable investments in human capital are available, it is plausible that statistical discrimination will induce blacks to invest in themselves more than whites do, not less. To formalize this intuition, we construct a model of statistical discrimination in which a worker’s race and educational attainment are observable by prospective employers, but a worker’s ability is not observable except by the worker himself. We analyze the model from a theoretical perspective, and then we apply it to the data. Education and Labor Market Discrimination