Labor Economics 5th Edition by George Borjas

Exercise 13

Suppose the discrimination coefficient increases as the firm employs more black workers. In particular, suppose the discrimination coefficient is d = 0.01 E B where E B is the number of blacks hired by the firm so that each employer facing competitive wages of w W for whites and w B for blacks acts as if she faces competitive wages of w W for whites and w B (1+ d ) for blacks. As usual, assume the labor market is competitive so that the firm faces wages of w B and w W. Lastly, assume that the firm must employ 200 workers. Define the wage ratio to be w W / w B and do the following:
(a) Solve for the number of blacks hired as a function of the wage ratio. Graph the number of blacks hired against the wage ratio.
(b) Solve for the number of whites hired as a function of the wage ratio. Graph the number of whites hired ( x -axis) against the wage ratio ( y -axis).