Abstract
This paper develops a model of the long-run effects of labor market discrimination. Once an individual responds to discrimination in a manner that changes basic human capital characteristics, past or current discrimination becomes a factor in determining future labor market outcomes. We utilize a growing empirical literature on the psychological effects of discrimination and unemployment to hypothesize that discrimination negatively affects human capital characteristics. The concept of learned helplessness is employed to show that negative events, such as an episode of discrimination, that are considered beyond the individual's control result in decreased learning ability. Discrimination creates helplessness which diminishes human capital characteristics resulting in decreased future employability.
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