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Stereotypes, segregation, and ethnic inequality

Yuki, Kazuhiro (2013): Stereotypes, segregation, and ethnic inequality.

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Disparities in economic conditions among different ethnic, racial, or religious groups continue to be serious concerns in most economies. Relative standings of different groups are rather persistent, although some groups initially in disadvantaged positions successfully caught up with then-advantaged groups. Two obstacles, costly skill investment and negative stereotypes or discrimination in the labor market, seem to distort investment and sectoral choices, give rise to skill and labor market segregations by ethnicity, and slow down the progress of disadvantaged groups.

How do these obstacles affect skill investment and sectoral choices of different groups and the dynamics of their economic outcomes and inter-group inequality? Is affirmative action necessary to significantly improve conditions of subordinate groups, or redistributive policies sufficient? In order to tackle these questions, this paper develops a dynamic model of statistical discrimination and examines how initial economic standings of groups and initial institutionalized discrimination affect subsequent dynamics and long-run outcomes.

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