ABSTRACT
Every measure of economic success reveals significant racial inequality in the U.S. labor market. Compared to Whites, African-Americans are twice as likely to be unemployed and earn nearly 25 percent less when they are employed (Council of Economic Advisers, 1998). This inequality has sparked a debate as to whether employers treat members of different races differentially. When faced with observably similar African-American and White applicants, do they favor the White one? Some argue yes, citing either employer prejudice or employer perception that race signals lower productivity. Others argue that differential treatment by race is a relic of the past, eliminated by some combination of employer enlightenment, affirmative action programs and the profit-maximization motive. In fact, many in this latter camp even feel that stringent enforcement of affirmative action programs has produced an environment of reverse discrimination. They would argue that faced with identical candidates, employers might favor the African-American one. Data limitations make it difficult to empirically test these views. Since researchers possess far less data than employers do, White and African-American workers that appear similar to researchers may look very different to employers. So any racial difference in labor market outcomes could just as easily be attributed to differences that are observable to employers but unobservable to researchers.
