This paper reviews theories of race discrimination in the labor market. Taste-based models can generate wage
and unemployment duration differentials when combined with either random or directed search even
when strong prejudice is not widespread, but no existing model explains the unemployment rate differential.
Models of statistical discrimination based on differential observability of productivity across races
can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment.
At their current state of development, models of statistical discrimination based on rational stereotypes
have little empirical content.