On the labor market effects of salience of ethnic/racial disputes

An increase in the salience of ethnic/racial (E/R) disputes often signifies a shift in the E/R status quo of a society. We present a labor market model where matching frictions are higher for the E/R minority due to labor market discrimination and the unemployment insurance benefits are determined via competitive elections. We hypothesize that a reduction in labor market discrimination, possibly because of its salience, shifts the unemployment from the minority to the majority, leading to a drop in the unemployment rate among the black minority, and consequently the unemployment insurance they receive. Nevertheless, the total unemployment insurance benefit may increase because the median voter, who is a member of the majority, prefers a higher level of unemployment insurance. To empirically test our hypothesis, we constructed a novel, news-based, and time-varying measure of E/R discrimination salience for the US and show that unemployment insurance benefits to the black minority decreases in response to an increase in our measure.