Isaac Sorkin is an Assistant Professor of Economics at Stanford. 

Abstract 

This paper develops a framework to quantify the size of racial disparities in earnings and employment that are not plausibly due to differences in productivity. The framework uses implications of employer optimization to match Black and white workers on unobservables in their current jobs.  Gaps in earnings and separations  between these matched pairs in the next job are then not plausibly due to differences in productivity. Implementing this framework in U.S. matched employer-employee data, I find that  about a third of the unconditional racial wage gap is not plausibly due to differences in productivity, and that the welfare costs of separation differences alone are around one percent of lifetime consumption.