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Does Wealth Explain Black-White Differences in Early Employment Careers?

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Author Info
Silvio Rendon () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

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Abstract

In this paper I inquire about the effects initial wealth has on black-white differences in early employment careers. I set up a dynamic model in which individuals simultaneously search for a job and accumulate wealth, and fit it to data from the National Longitudinal Survey (1979-cohort). The estimates show that borrowing constraints are tight for both race groups. Regime changes reveal that differences in initial wealth account almost fully for the racial gap in wealth and wages at the beginning of employment careers, but their effect tapers off and completely dissapears several years after graduation. In contrast, differences in the labor market environment and in preferences are shown to account fully for both racial gaps, in wealth and in wages, persisting several years after High School graduation.

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File URL: http://ftp.itam.mx/pub/academico/inves/rendon/06-03.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0603.

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Length: 51 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:cie:wpaper:0603

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Related research
Keywords: Job search; wealth; racial differences; borrowing constraints; consumption; unemployment; estimation of dynamic structural models;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
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  1. Donghoon Lee, 2005. "An Estimable Dynamic General Equilibrium Model Of Work, Schooling, And Occupational Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 1-34, 02. [Downloadable!] (restricted)
  2. Rendon Sílvio, 2006. "Job Search And Asset Accumulation Under Borrowing Constraints ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 233-263, 02. [Downloadable!] (restricted)
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  3. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. James P. Smith, 2004. "Racial and Ethnic Differences in Wealth in the Health and Retirement Study," Labor and Demography 0408011, EconWPA. [Downloadable!]
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  5. Keane, Michael P & Wolpin, Kenneth I, 2000. "Eliminating Race Differences in School Attainment and Labor Market Success," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 614-52, October. [Downloadable!] (restricted)
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  6. Orazem, Peter, 2003. "Black-White Differences in Schooling Investment and Human Capital Production in Segregated Schools," Staff General Research Papers 11130, Iowa State University, Department of Economics.
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  7. Zvi Eckstein & Kenneth I. Wolpin, 1999. "Estimating The Effect Of Racial Discrimination On First Job Wage Offers," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 384-392, August. [Downloadable!] (restricted)
  8. Blau, Francine D & Graham, John W, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 321-39, May. [Downloadable!] (restricted)
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  9. Nancy Jianakoplos & Paul Menchik & Owen Irvine, 1989. "Using Panel Data to Assess the Bias in Cross-sectional Inferences of Life-Cycle Changes in the Level and Composition of Household Wealth," NBER Chapters, in: The Measurement of Saving, Investment, and Wealth, pages 553-644 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Lazear, Edward, 1979. "The Narrowing of Black-White Wage Differentials Is Illusory," American Economic Review, American Economic Association, vol. 69(4), pages 553-64, September. [Downloadable!] (restricted)
  11. Smith, James P & Welch, Finis R, 1989. "Black Economic Progress after Myrdal," Journal of Economic Literature, American Economic Association, vol. 27(2), pages 519-64, June. [Downloadable!] (restricted)
  12. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-95, October. [Downloadable!] (restricted)
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  13. Maury Gittleman & Edward N. Wolff, 2004. "Racial Differences in Patterns of Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 39(1). [Downloadable!] (restricted)
  14. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ivan Grguric, 2005. "Moving up the income ladder? What are the obstacles: a case study of indigenous people in Latin America," Financial Theory and Practice, Institute of Public Finance, vol. 29(4), pages 361-381. [Downloadable!]
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