Perceptions of Race in the Labor Market

Empirical studies of racial wage disparities typically rely on self-reported race and treat racial categories as fixed. This paper shows that racial classification in the labor market is produced by social perception, and that modeling this process is essential for measuring wage gaps. We combine two large administrative data sets to construct three racial identity measures for 330,000 workers in Brazil (2003-2015): employer classification, self-identification, and an algorithmic skin-tone measure. Self-identified and employer-ascribed race differ in over 20 percent of cases, and employers disagree about the same worker. We estimate a "race function" describing how employers map phenotypic cues, self-identification, education, and employment histories into racial categories. Holding skin tone constant, university graduates are substantially more likely to be perceived as White. Measured wage gaps vary across racial definitions, and accounting for perception meaningfully alters disparity estimates. We show that conventional approaches overstate the role of productivity differences in explaining racial wage gaps.