Segregation in Education and Labour Market Discrimination: The Role of Peer Beliefs

In this paper we examine the long term effects of socialization and segregation in schools, on labour market outcomes. We incorporate a model of “informational” peer influence by which beliefs of pupils are affected by exposure to other pupils’ posterior beliefs. Specifically, we focus on the beliefs of private school graduates about the productivity of state school graduates. We incorporate this into a dynamic model of parental school choice (state versus private) and labour market decisions (whether to hire a state or a private school graduate). We provide necessary and sufficient conditions for segregation in education and discrimination in the labour market to hold.