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The Role of Pre-Market Factors in Black-White Wage Differences

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  • Derek A. Neal
  • William R. Johnson

Abstract

Many attempts to measure the wage effects of current labor market discrimination against minorities include controls for worker productivity that (1) could themselves be affected by market discrimination and (2) are very imprecise measures of worker skill. The resulting estimates of residual wage gaps may be biased. Our approach is a parsimoniously specified wage equation which controls for skill with the score of a test administered as teenagers prepared to leave high school and embark on work careers or post-secondary education. Independent evidence shows that this test score is a racially unbiased measure of the skills and abilities these teenagers were about to bring to the labor market. We find that this one test score explains all of the black-white wage gap for young women and much of the gap for young men. For today's young adults, the black-white wage gap primarily reflects a skill gap, which in turn can be traced, at least in part, to observable differences in the family backgrounds and school environments of black and white children. While our results do provide some evidence of current labor market discrimination, skill gaps play such a large role that we believe future research should focus on the obstacles black children face in acquiring productive skills.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5124.

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Date of creation: May 1995
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Publication status: published as Journal of Political Economy, October, 1996, vol.104, no.5, pp.869-895.
Handle: RePEc:nbr:nberwo:5124

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  1. John J. Donohue III & James Heckman, 1991. "Continuous Versus Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks," NBER Working Papers 3894, National Bureau of Economic Research, Inc.
  2. Nan L. Maxwell, 1994. "The effect on black-white wage differences of differences in the quantity and quality of education," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 249-264, January.
  3. Michael Boozer & Alan Krueger & Shari Wolkon, 1992. "Race and School Quality Since Brown vs. Board of Education," Working Papers 681, Princeton University, Department of Economics, Industrial Relations Section..
  4. Mary Corcoran & Greg J. Duncan, 1979. "Work History, Labor Force Attachment, and Earnings Differences between the Races and Sexes," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 3-20.
  5. David Card & Alan Krueger, 1990. "School Quality and Black/White Relative Earnings: A Direct Assessment," Working Papers 652, Princeton University, Department of Economics, Industrial Relations Section..
  6. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-66, May.
  7. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
  8. John Bound & David A. Jaeger & Regina Baker, 1993. "The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables," NBER Technical Working Papers 0137, National Bureau of Economic Research, Inc.
  9. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers 653, Princeton University, Department of Economics, Industrial Relations Section..
  10. Lundberg, Shelly J & Startz, Richard, 1983. "Private Discrimination and Social Intervention in Competitive Labor Markets," American Economic Review, American Economic Association, vol. 73(3), pages 340-47, June.
  11. O'Neill, June, 1990. "The Role of Human Capital in Earnings Differences between Black and White Men," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 25-45, Fall.
  12. Richard Butler & James J. Heckman, 1977. "The Government's Impact on the Labor Market Status of Black Americans: A Critical Review," NBER Working Papers 0183, National Bureau of Economic Research, Inc.
  13. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  14. Grogger, Jeff, 1996. "Does School Quality Explain the Recent Black/White Wage Trend?," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 231-53, April.
  15. Reimers, Cordelia W, 1983. "Labor Market Discrimination against Hispanic and Black Men," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 570-79, November.
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