Discrimination, human capital, and life expectancy in a model of economic development

Evidence suggests that race‐ and gender‐based discrimination are prevalent. If discrimination misallocates resources then it is likely to generate social costs. This paper provides a general equilibrium model of the impacts of discrimination. We analyze effects of labor market discrimination in a model where agents make human capital decisions based on comparing the marginal benefits and marginal costs of additional human capital accumulation. Life expectancy is a consideration in making human capital decisions, and is allowed to be endogenous. We find that the impact of discrimination on equilibrium depends on the nature of any skills bias in discrimination.