The Economics of Discriminatory Job Reservations

A society reserves certain jobs for members of a politically dominant social group to maximize the wages of workers in that group. Through an appropriate choice of reserved jobs, the dominant group chooses both the size of the set of reserved jobs and the elasticity of substitution between reserved and unreserved jobs. Optimal discrimination endogenously creates categories of “good” and “bad” jobs and assigns workers from different social groups into these different categories. The relative scarcity of labor determines whether discrimination or free labor markets are optimal. I apply the model to apartheid South Africa and other discriminatory societies.