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Bank deregulation and racial inequality in America

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  • Ross Levine
  • Alexey Levkov
  • Yona Rubinstein

Abstract

We use the cross-state, cross-time variation in bank deregulation across the U.S. states to assess how improvements in banking systems affected the labor market opportunities of black workers. Bank deregulation from the 1970s through the 1990s improved bank efficiency, lowered entry barriers facing nonfinancial firms, and intensified competition for labor throughout the economy. Consistent with Becker’s (1957) seminal theory of racial discrimination, we find that deregulation-induced improvements in the banking system boosted blacks’relative wages by facilitating the entry of new firms and reducing the manifestation of racial prejudices in labor markets.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Risk and Policy Analysis Unit Working Paper with number RPA 12-5.

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Date of creation: 2012
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Handle: RePEc:fip:fedbqu:rpa12-5

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Keywords: Banks and banking ; Labor market ; Wages ; Bank competition;

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  1. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer learning and statistical discrimination," Working Paper Series, Macroeconomic Issues WP-97-11, Federal Reserve Bank of Chicago.
  2. David Card & Alan B. Krueger, 1991. "School Quality and Black-White Relative Earnings: A Direct Assessment," NBER Working Papers 3713, National Bureau of Economic Research, Inc.
  3. Heywood, John S & Peoples, James H, Jr, 1994. "Deregulation and the Prevalence of Black Truck Drivers," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 133-55, April.
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  5. Donohue, John J, III & Heckman, James, 1991. "Continuous versus Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1603-43, December.
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  13. White, Eugene Nelson, 1982. "The Political Economy of Banking Regulation, 1864–1933," The Journal of Economic History, Cambridge University Press, vol. 42(01), pages 33-40, March.
  14. David Austen-Smith & Ronald G. Fryer, 2005. "An Economic Analysis of 'Acting White'," Discussion Papers 1399, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
  16. Ashenfelter, Orley & Hannan, Timothy, 1986. "Sex Discrimination and Product Market Competition: The Case of the Banking Industry," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 149-73, February.
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  20. Thorsten Beck & Ross Levine & Alexey Levkov, 2010. "Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States," Journal of Finance, American Finance Association, vol. 65(5), pages 1637-1667, October.
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