Blacks have both lower employment rates and lower earnings than whites. Further, the earnings gap increases as workers age. This paper focuses on explaining differences in black/white earnings profiles and how government interventions work in a dynamic environment. Three contributions are made. Firstly, multiple equilibria may exist solely because of a coordination failure by firms. Even without taste discrimination, blacks may play no role in their poor labor market outcomes. Secondly, search discrimination leads to economic discrimination against the non-discriminated group (reverse discrimination). Finally, in response to a quota program, whites may find it optimal to subsidize black investment. © 2002 Elsevier B.V. All rights reserved.