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This study attempts to explain role of racial discrimination in perpetuating the vicious circle of poverty of black Americans in the two major social institutions for socioeconomic upward mobility, namely, education and labor market. In section II, a survey of literature and descriptive statistics on the magnitude and determinants of racial difference in educational attainment between black and white students are presented. In section 111,economic mechanism of the labor market via which discrimination against black workers by consumers, employers, and employers adversely affects black workers' earnings and occupational distribution is explained. Cumulative effects of racial discrimination in education and in the labor market on economic returns from schooling for black males are analyzed in section IV. Based on the theory of investment in human capital and using disaggregated data from a national survry, a new hypothesis about cause of racial difference in college enrollment rates between young black and white males is empirically investigated in section V. Contrary to the traditional view which attributes low college enrollment rate of black males mainly to their low family incomes, this study asserts that their low enrollment rate is largely due to extremely low returns from one to three years of college education for them because of the racial discrimination. It is argued that there exists a low educational level equilibrium trap at one to three years of college education where net marginal returns from schooling become negative when discounted by a sufficiently large discount rate. In the presence of such a trap, many black males would not enroll in colleges unless they can afford at least four years of college education or more. Empirical results of regression analyses show a strong threshold phenomenon in the relationship between family income and college enrollment of black males indicating that many black males who have attained four years of high school do not enroll in colleges unless their family incomes reach a high threshold level. The results not only strongly support the maintained hypothesis but also imply that there will be a growing tendency of socioeconomic class separation within the black population in the future because of the trap.