Is Equal Opportunity Enough? A Theory of Persistent Group Inequality∗

For a society in transition from group-based hierarchical organization to a regime of equal opportunity one may ask whether group inequality engendered by past discrimination will eventually disappear. The answer is not obvious when ongoing social segregation leads different groups to benefit unequally from human capital spillovers. We identify conditions under which group differences in economic success persist across generations in the absence of either discrimination or group differences in ability, provided that social segregation is sufficient. Moreover, the relationship between long run group inequality and social segregation is characterized by an important discontinuity: there is a threshold level of integration above which group inequality cannot be sustained.