Understanding black-white disparities in labor market outcomes requires models that account for persistent discrimination and unequal bargaining power

Valerie Wilson, Economic Policy Institute, and William Darity Jr., Duke University The assumption of a perfectly competitive labor market is central to some of the most widely accepted theories in the field of labor economics. But the persistent threat of unemployment means that workers often cannot change jobs or employers easily and without cost. This imbalance of power disproportionately disadvantages black workers: One of the most durable and defining features of the U.S. labor market is the 2-to-1 disparity in unemployment that exists between black and white workers. The economic theories most often invoked to explain racial differentials in labor market outcomes—human capital theory, taste-based models of discrimination, and statistical models of discrimination—fall short in their attempts to explain long-standing racial disparities in unemployment and pay while blatantly denying the persistence of discrimination. A better framework is stratification economics, which argues that, while discrimination is unjust, it serves the functional role of preserving hierarchy. Identity can be structured so that investing in, or associating with, a group identity can lead to economic returns and benefits