Race Has a Hand in Determining Market Outcomes

Economic outcomes in the United States are highly correlated with race, but it is not clear what causal mechanisms underlie these correlations. In particular, how much is due to discrimination? How much is due to other characteristics— such as education—that vary across racial groups? Assuming that discrimination does occur, it is also unclear how much is “taste-based” (against race itself) rather than “statistical” (where race is used as a proxy for unobservable negative characteristics). The relative importance of these various effects has important policy implications. Economists have worked for years to identify discrimination and disentangle these two different sources. Much of this research has used field experiments to avoid the biases that can plague observational studies. (Observational studies, which compare groups of black subjects and white subjects, typically have non-random samples and cannot control for unobservable characteristics.) Experiments can of course have their own shortcomings. For example, actor-based audit studies—in which actors apply for jobs, consider housing, or negotiate sales—attempt to match different-race candidates on as many dimensions as possible, but the match quality will never be perfect and these studies are typically not double-blind.