Explaining the Black-White Wage Gap

(iStockphoto)

As of 2010, black men in America earned 74.5 percent of a typical white man’s wage; black women earned 69.6 percent. A new paper from Harvard’s Roland Fryer (certified genius), Princeton’s Devah Pager and Jorg L. Spenkuch of the University of Chicago examines some of the factors driving the black-white wage gap.

Using data from unemployed workers in New Jersey who sought employment for up to 12 weeks, the authors show that racial discrimination accounts for one-third of the wage difference. They also estimate that blacks have a 7 percent lower reservation wage than their white counterparts at a comparable job that demands a comparable skill level. Fryer and his colleagues control for skill level by measuring the job applicants’ wage at their previous job against the wage they were seeking.

Here’s the abstract:

The extent to which discrimination can explain racial wage gaps is one of the most divisive subjects in the social sciences. Using a newly available data set, this paper develops a simple empirical test which, under plausible conditions, provides a lower bound on the extent of discrimination in the labor market. Taken at face value, our estimates imply that differential treatment accounts for at least one third of the black-white wage gap. We argue that the patterns in our data are consistent with a search-matching model in which employers statistically discriminate on the basis of race when hiring unemployed workers, but learn about their marginal product over time. However, we cannot rule out other forms of discrimination.

The differences in wages between blacks and whites is between 25 and 30 percent, and the need to explain this remains a vexing debate in social science today. Throughout their research, the authors verified a story arc in which employers discriminate against blacks in terms of initial wage, but then slowly raise wages as they learn more about the individual employee.

To conclude our analysis, we explore the extent to which discrimination based on animus or differences in pre-market skills can account for our set of facts: (1) blacks incur larger losses than whites with job separations; (2) blacks have lower reservation wages; and (3) blacks garner higher returns to tenure in a firm.

The study shows that although the black-white wage gap widens by .9 percentage points per year of potential labor market experience, it decreases by 12 percentage points per year of tenure with a given employer. Meaning, blacks have much more of an incentive to stay at a firm rather than look for new employment since “the market provides less insurance than it does for equally skilled whites.”

The authors conclude:

This suggests that alleviating racial inequality may take a combination of policies to both eliminate barriers to investing in pre-market skills and anti-discrimination enforcement so that minorities are appropriately rewarded for those skills.

Which is an interesting thought, considering the recent cookie protests sweeping the media.


Dan

Charles Murray shed some light on this issue in his best seller on the Wealth of Nations. If you look at the different nations of the world that are homogeneous, there are vast and seemingly intractable differences in economic performance, and discrimination cannot be the cause because most of these countries are essential homogeneous in their different ways. That said, the variety of nations and people are a beautiful thing. I speak as someone in a mixed-race marriage.

Moderators, you can avoid this issue if you wish, but it is not honest to bring up this topic and censor one of the most central issues. I would have avoided this issue because it is impossible to have an intellectually honest discussion without dealing with unpleasant things.

james

So the study states that differential treatment is responsible for only a fraction of the actual difference.

Perhaps we should focus on the greater, unsolved problem, and that is the remaining reason for differential, aside from racism.

In fact, it is this differential - high crime rates, high drop out rates, high rates of domestic violence, questionable value system (upholding community thugs as heroes, though of course that is complicated), etc etc..

Solving the 'bigger' problem is what will quickly remedy the 'lesser' problem of racism.

To put another way, there is good reason that people are a little more suspicious of blacks - whether it's fair or ethical or not is a separate issue.

Once Blacks started leading the way, leading their own lives, taking responsibility for their communities, funny thing ... they will actually be in *more* demand than others ...

Roxie

That is the most racist thing I've read all day.
And as someone who spends their days reading political and social justice news, that's really saying something.
Black people are not a monolith. I also suggest you get more familiar with American history. Google things like "Black Wall Street", "Rosewood", & "Whitecapping"

some guy

In other words, W =/= MRP and wages are a function of structural racism.

Chase

Does this take in to account different career choices, population numbers, experience and education?

Marta

Saying that an employer should take into account previous salary begs the question, and more importantly, it perpetuates the disparities and discrimination that this article discusses. If two equally qualified candidates --one a White man and one a woman or a person of color--are offered identical positions, but their salaries at the new job are based on their old salaries, statistically, it is likely that the white male will be offered more because he likely was making more before. Thus the cycle continues.

So if you are a white male on this thread who supports basing salaries on your past salary, well, of course you do because that almost universally benefits you. But for a woman or a person of color, it is an invitation to more of the "being paid less" disease.

sara

How, precisely, do employers "discriminate against blacks in their initial wage" ? I thought that most job categories, particularly those for lower-wage jobs, did not allow for negotiation of wages. That is, the wage was fixed.