Does Wealth Explain Black-White Differences in Early Employment Careers?

In this paper I inquire about the effects initial wealth has on black-white differences in early employment careers. I set up a dynamic model in which individuals simultaneously search for a job and accumulate wealth, and fit it to data from the National Longitudinal Survey (1979-cohort). The estimates show that borrowing constraints are tight for both race groups. Regime changes reveal that differences in initial wealth account almost fully for the racial gap in wealth and wages at the beginning of employment careers, but their effect tapers off and completely dissapears several years after graduation. In contrast, differences in the labor market environment and in preferences are shown to account fully for both racial gaps, in wealth and in wages, persisting several years after High School graduation.