Competition and Racial Discrimination: The Employment Effects of Reagan's Labor Market Policies

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Abstract
Black-white inequality in employment has been increasing since 1982 despite rapid economic growth. This phenomenon is explained in terms of the interaction between discrimination, labor market structure and public policy. If the labor market is slack, competitive pressures will tend to increase employment discrimination due to shifts in the cost and compositional structures of discrimination. The policies of the Reagan administration have thereby contributed to a decline in the relative probability of black employment by keeping unemployment high, job competition intense and antidiscrimination efforts weak. Changes in the cyclical variability of the black-white unemployment rate differential lend empirical support to the argument.

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