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Labor Market Information and Wage Differentials by Race and Sex

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  • David Neumark

Abstract

This paper attempts to test whether information problems in labor markets can explain why minority or female workers are sometimes paid less than equally-qualified white male workers. In particular, the relationship between starting wages, current performance, and race and sex is studied. OLS regressions of starting wages on current performance--which is measured some time after the beginning of employment--indicate that minority workers are paid lower starting wages than white workers with the same eventual performance, among both men and women. This may reflect taste discrimination. However, if employers base starting wages on expected productivity or performance, and average performance is lower for minority workers (as it is in these data), then these estimated differentials could reflect simple statistical discrimination. A test of statistical versus taste discrimination and a test of statistical discrimination versus pure measurement error provide some evidence for both men and women that statistical discrimination is partly to blame for these differences in starting wages between minority and white workers, although the evidence is not very strong statistically. Average performance of women is if anything higher than that of men, so simple statistical discrimination cannot explain the lower starting wages that women receive. However, more complex models of statistical discrimination suggest that worse labor market information about a particular group can generate lower wages for that group. A test of the quality of labor market information suggests that employers have better information about male workers, which may explain the lower starting wages paid to women. Together, this evidence suggests that better labor market information might boost starting wages of minorities and women.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6573.

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Date of creation: May 1998
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Publication status: Published as "Wage Differentials by Race and Sex: The Roles of Taste Discrimination and Labor Market Information", Industrial Relations, Vol. 38 , no. 3 (July 1999): 414-445.
Handle: RePEc:nbr:nberwo:6573

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  1. Derek A. Neal & William R. Johnson, 1995. "The Role of Pre-Market Factors in Black-White Wage Differences," NBER Working Papers 5124, National Bureau of Economic Research, Inc.
  2. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, American Economic Association, vol. 62(4), pages 659-61, September.
  3. Oettinger, Gerald S, 1996. "Statistical Discrimination and the Early Career Evolution of the Black-White Wage Gap," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 14(1), pages 52-78, January.
  4. Daniel Immergluck, 1996. "What employers want: Job prospects for less-educated workers," The Review of Black Political Economy, Springer, Springer, vol. 24(4), pages 135-143, June.
  5. Joseph G. Altonji & Charles R. Pierret, . "Employer Learning and Statistical Discrimination," IPR working papers 97-18, Institute for Policy Resarch at Northwestern University.
  6. Lang, Kevin, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 363-82, May.
  7. Rothschild, Michael & Stiglitz, Joseph E., 1982. "A model of employment outcomes illustrating the effect of the structure of information on the level and distribution of income," Economics Letters, Elsevier, Elsevier, vol. 10(3-4), pages 231-236.
  8. Harry Holzer & David Neumark, 1996. "Are Affirmative Action Hires Less Qualified? Evidence from Employer-Employee Data on New Hires," NBER Working Papers 5603, National Bureau of Economic Research, Inc.
  9. Andrew D. Foster & Mark R. Rosenzweig, 1993. "Information, Learning, and Wage Rates in Low-Income Rural Areas," Journal of Human Resources, University of Wisconsin Press, vol. 28(4), pages 759-790.
  10. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  11. Richard W. Johnson & David Neumark, 1997. "Age Discrimination, Job Separations, and Employment Status of Older Workers: Evidence from Self-Reports," Journal of Human Resources, University of Wisconsin Press, vol. 32(4), pages 779-811.
  12. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  13. Bergmann, Barbara R, 1989. "Does the Market for Women's Labor Need Fixing?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(1), pages 43-60, Winter.
  14. Farmer, Amy & Terrell, Dek, 1996. "Discrimination, Bayesian Updating of Employer Beliefs and Human Capital Accumulation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(2), pages 204-19, April.
  15. Smith, James P & Ward, Michael, 1989. "Women in the Labor Market and in the Family," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(1), pages 9-23, Winter.
  16. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical theories of discrimination in labor markets," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(2), pages 175-187, January.
  17. Light, Audrey & Ureta, Manuelita, 1995. "Early-Career Work Experience and Gender Wage Differentials," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 13(1), pages 121-54, January.
  18. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(1), pages 1-19, January.
  19. David Neumark & Roy J. Bank & Kyle D. Van Nort, 1995. "Sex Discrimination in Restaurant Hiring: An Audit Study," NBER Working Papers 5024, National Bureau of Economic Research, Inc.
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Cited by:
  1. Sparber, Chad, 2007. "Racial Diversity and Aggregate Productivity in U.S. Industries: 1980-2000," Working Papers, Department of Economics, Colgate University 2007-02, Department of Economics, Colgate University.
  2. Song Han, 2002. "On the economics of discrimination in credit markets," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-2, Board of Governors of the Federal Reserve System (U.S.).
  3. Paul, Maureen, 2006. "A cross-section analysis of the fairness-of-pay perception of UK employees," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 35(2), pages 243-267, April.
  4. Balsa, Ana I. & McGuire, Thomas G., 2001. "Statistical discrimination in health care," Journal of Health Economics, Elsevier, Elsevier, vol. 20(6), pages 881-907, November.

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