Hiring or firing? The dynamics of unemployment inequality among the children of immigrants

A large body of research has studied the channels driving ethnic inequalities in unemployment rates. Especially recently, research has almost exclusively examined barriers to unemployment exit (becoming employed) in the form of hiring discrimination conveying the idea that inequality in unemployment is all about hiring. Roughly no studies, in fact, have focused on the role of unemployment entry in explain ethnic and racial inequalities in unemployment. We contribute to this debate by examining inequalities in exiting and entering unemployment across second-generation immigrants and natives in Sweden and propose two possible explanations: hiring discrimination and precariousness. This marks an important extension to existing research because we shed light on the most relevant dynamic in accounting for the ethnic unemployment gap. Analyses are based on Swedish population registers. Correlated random-effects dynamic models are used to derive group-specific steady-state probabilities (SSP). In addition, we estimate counterfactual SSP where second-generation immigrants have natives’ unemployment 1) entry probabilities and 2) exit probabilities. Our results show that equalizing unemployment exit does not reduce unemployment inequality. Rather, the unemployment gap disappears when equalizing unemployment entry. This points towards differences in precariousness to be a likely force at work.