predict whether a deceased worker is non-white or white. Thus, when comparing peer groups with the same initial racial composition, the race of the deceased worker provides us with an exogenous shock to the racial composition among the remaining incumbent workers.<sup>1</sup> Our analysis concentrates on small peer groups of no more than 30 workers in the same occupation within an establishment. We verify that the death of a non-white vs. white worker leads to a quantitatively meaningful and lasting shift in the racial composition of these peer groups. For our estimation strategy, we rely on simple cross-sectional regressions that relate incumbents’ retention after the death to a dummy for whether the deceased worker is nonwhite, controlling for the pre-death racial composition and other incumbent characteristics. Using comprehensive administrative data from Brazil, this set-up allows us to study the causal effects of the racial coworker composition on workers’ retention for a large set of firms.<sup>2</sup> We find that experiencing the loss of a non-white coworker – relative to the loss of a white coworker – significantly reduces the retention of non-white incumbents. In quantitative terms, our results show that the likelihood of non-white incumbents staying at the same firm decreases by 1.1 percentage points (1.8% relative to the control mean) in the three years after the death. In contrast, we find no significant effects on the retention rates of white incumbents. Our results highlight that peer effects are not symmetric across racial groups: Non-white workers are more strongly affected by the racial composition of their peers than white workers. Several robustness checks, in which we vary the inclusion of control variables in the specification, estimate duration models, or use alternative peer group definitions, confirm our main results.

To shed light on the potential mechanisms driving the lower retention rates of non-white workers following the reduction in the share of same-race coworkers, we conduct several additional analyses. First, we show that the effects are driven by worker-initiated quits rather than employer-initiated layoffs. Given that in Brazil, workers who quit the job on their own are not entitled to severance payments and unemployment benefits, quits likely capture workers’ labor supply driven by preferences for different job characteristics. Moreover, we do not find any significant effects on the earnings of non-white incumbents. The absence of effects on layoff probabilities and earnings suggests that employers’ demand for incumbent workers is not affected by the loss of a same-race peer. Second, we track workers after they separate from their initial firm. For the subset of workers who start a new formal job in the same or the following

> 1Exploiting departures of workers due to deaths has another advantage: It rules out that the effects on the retention of incumbents are driven by racially segregated referral hiring, whereby departing workers may recruit their former coworkers to their new jobs (Hensvik and Skans, 2016; Miller and Schmutte, 2023).

> 2J ̈ager and Heining (2022) and Bertheau _et al._ (2022) leverage worker deaths as shocks to firms’ overall labor supply to study replacement costs from worker exits. In contrast, we exploit the characteristics of the deceased worker which impact the composition of workers at a firm. Illing _et al._ (2023) examine how exogenous vacancies after worker deaths can lead to different labor market outcomes for male and female replacement workers. We, instead, analyze how deceased workers of different races affect the retention of incumbent workers.

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