American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Labor Market Discrimination and the Racial Unemployment Gap: Can Monetary Policy Make a Difference?
American Economic Journal: Macroeconomics
(pp. 390–428)
Abstract
Black workers experience higher, more volatile unemployment than White workers, a racial disparity unexplained by observables. A New Keynesian model with a frictional labor market, endogenous separations, and employer discrimination explains these outcomes. We use the model to assess how alternative monetary policy strategies affect labor market outcomes by race. Switching to a monetary policy rule where interest rates respond to shortfalls of employment from its maximum level instead of deviations raises inflation and does not reduce the racial unemployment gap. A monetary policy rule where interest rates respond to the racial unemployment gap also fails to reduce the gap.Citation
Cairó, Isabel, and Avi Lipton. 2026. "Labor Market Discrimination and the Racial Unemployment Gap: Can Monetary Policy Make a Difference?" American Economic Journal: Macroeconomics 18 (4): 390–428. DOI: 10.1257/mac.20240207Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- J15 Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
- J63 Labor Turnover; Vacancies; Layoffs
- J71 Labor Discrimination