City Structure, Job Search and Labour Discrimination: Theory and Policy Implications

We consider a search-matching model in which black workers are discriminated against and the job arrival rates of all workers depend on social networks as well as distance to jobs. Location choices are mainly driven by racial preferences. There are multiple equilibria and we show that all workers are in general better off in the equilibrium where blacks are close to jobs. We also show that, in cities where black workers reside far away from jobs, the optimal policy is to impose higher quotas or employment subsidies than in cities where they live close to jobs.