Seeing Through Color Blindness: Social Networks as a Mechanism for Discrimination

I study labor markets in which firms both hire via referrals and are race blind orcolor- blind. I develop an employment model showing that despite initial equality in ability, employment, wages, and network structure, minorities receivedisproportionately fewer jobs through referrals and lower expected wages, sim-ply because their social group is smaller. This discriminatory outcome, which Iterm “social network discrimination,” arises from homophily and falls outsidethe dominant economics discrimination models, which are taste based and statistical. I calibrate the model using a nationally representative sample of youthnetworks to estimate the lower bound welfare gap caused by social networkdiscrimination, which also disadvantages black workers.

This paper isolates apotential underlying mechanism for inequality, adding to the understanding oflabor- market disparities that have been widely studied across the social sciences.In doing so, the paper disproves the proposition that color-blind policies inherently promote individual merit.