Cultural Differences and the Economic Performance of Minorities and Immigrants

The economic outcomes of a minority group may be adversely affected by the cultural differences between it and the majority group. On the other hand, cultural differences may lead a minority group to concentrate in enclaves, which can offset to some extent the negative effect of cultural discrimination. We examine how the relative size of a minority group and cultural differences between groups can affect economic outcomes. We begin by specifying a simple theoretical framework and then characterize an economy with four ethnic groups that differ culturally and in size. We then test the effect of these differences on economic outcomes. The results indicate that the difference in earnings between native Jews and Ethiopian immigrants and between native Jews and Israeli Arabs is due to taste-based discrimination.