Prejudice and racial matches in employment

We develop a model in which some employers hold unobservable racial prejudice towards black workers. Workers, however, observe a signal of prejudice status - the presence of a black supervisor. Jobs in firms with black supervisors hold higher option value for black workers, because they are less likely to face prejudice-based termination. Hence, black workers are willing to accept employment with lower expected match quality from firms with black supervisors. We derive predictions on differences in wages and job stability across supervisor race and prejudice levels and find empirical support for them using unique longitudinal data on workers' supervisors and state-level measures of prejudice.