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A Stochastic Model of Discrimination in the Labor Market
Stephen J. Carroll
John E. Rolph
Abstract
We present a stochastic model of the employment process in which both the worker's search for jobs and the employer's search for workers are simple Markov processes. An employer's hiring decision is determined by the type of worker applying. Dynamic programming methods are used to find the optimal hiring policy by analyzing the interaction between the two processes. The steady-state distribution of worker unemployment by type is derived.
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