DISCRIMINATION, BAYESIAN UPDATING OF EMPLOYER BELIEFS, AND HUMAN-CAPITAL ACCUMULATION

This article proposes a dynamic labor market discrimination model base d on Bayesian updating of beliefs by the employer. The employer forms initial beliefs of worker ability conditional on group and updates his beliefs each period based on observed output. Inaccurate initial prio rs lead to diminished human capital investment among members of the un dervalued group and may generate inequities lasting many periods or ev en permanently Statistical discrimination models in which differing va riances drive the inequity are special cases of the model.