DISCRIMINATION, SOCIAL-PSYCHOLOGY, AND HYSTERESIS IN LABOR-MARKETS

This paper develops a model of the long-run effects of labor market di scrimination. Once an individual responds to discrimination in a manne r that changes basic human capital characteristics, past or current di scrimination becomes a factor in determining future labor market outco mes, We utilize a growing empirical literature on the psychological ef fects of discrimination and unemployment to hypothesize that discrimin ation negatively affects human capital characteristics. The concept of learned helplessness is employed to show that negative events, such a s an episode of discrimination, that are considered beyond the individ ual's control result in decreased learning ability. Discrimination cre ates helplessness which diminishes human capital characteristics resul ting in decreased future employability.