Suppose that a prejudiced African-American employer has a discrimination coefficient of $5/hour. Suppose also that the market wage rate is $20/hour for African-American workers, and $18/hour for Hispanic workers. In this case, the employer will

Question

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The employer's discrimination coefficient of $5/hour means they perceive the cost of hiring Hispanic workers as $18 + $5 = $23/hour. To be indifferent between hiring African-American workers at $20/hour and Hispanic workers, the perceived cost for Hispanic workers must also be $20/hour. Therefore, the actual wage for Hispanic workers must be $23 - $5 = $18/hour, which means the employer will hire them if their wage falls to $15/hour.

Suppose That a Prejudiced African-American Employer Has a Discrimination Coefficient