IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Ethnic Specialization and Earnings Inequality: Why Being a Minority Hurts but Being a Big Minority Hurts More

  • Kahanec, Martin

    ()

    (Central European University)

Social interaction is an important vehicle of human capital acquisition and its efficiency decreases in social distance. In this paper I establish that these two premises, given the socio-cultural differences between ethnic groups, explain the puzzling evidence that (i) minorities typically earn less than majorities and (ii) this earnings gap is increasing in the relative size of a minority in a given region. In particular, I argue that inter-ethnic social distance disadvantages smaller ethnic groups in human capital acquisition and that these efficiency differentials systematically expose minority and majority individuals to different incentives as concerns their choice of skills. As a result, minority and majority individuals tend to acquire different (combinations of) skills and the textbook substitution effect drives an efficiency unit of minority labor to sell at a relatively lower wage in a region with higher percentage of minority people. The conditions under which the efficiency disadvantage of the minority in social interaction and the substitution effect explain the abovementioned empirical findings are established. In addition, this study offers an answer why some minorities earn more than majorities, why minority individuals tend to spend more time socializing in families than in schools, and why integration may harm minorities.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp2050.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2050.

as
in new window

Length: 48 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2050
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
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.:

as in new window
  1. Shelly Lundberg & Richard Startz, 1998. "Race, Information, and Segregation," Working Papers 0047, University of Washington, Department of Economics.
  2. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  3. Lundberg, S. & Startz, R., 1992. "On the Persistence of Racial Inequality," Discussion Papers in Economics at the University of Washington 92-04, Department of Economics at the University of Washington.
  4. Coate, S. & Loury, G.C., 1992. "Will Affirmative Action Policies Eliminate Negative Stereotypes?," Papers 3, Boston University - Department of Economics.
  5. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-61, September.
  6. Ellison, Glenn & Fudenberg, Drew, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 93-125, February.
  7. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  8. Heckman, James J., 2000. "Policies to foster human capital," Research in Economics, Elsevier, vol. 54(1), pages 3-56, March.
  9. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  10. William A. Darity Jr., 1982. "The Human Capital Approach to Black-White Earnings Inequality: Some Unsettled Questions," Journal of Human Resources, University of Wisconsin Press, vol. 17(1), pages 72-93.
  11. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
  12. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  14. Allen, Beth, 1982. "Some Stochastic Processes of Interdependent Demand and Technological Diffusion of an Innovation Exhibiting Externalities among Adopters," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 595-608, October.
  15. Durlauf, S.N., 1993. "Spillovers, Stratification, and Inequality," Working papers 9327, Wisconsin Madison - Social Systems.
  16. Timothy G. Conley & Christopher R. Udry, 2005. "Learning about a new technology: pineapple in Ghana," Proceedings, Federal Reserve Bank of San Francisco.
  17. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
  18. Kahanec, Martin, 2006. "The Substitutability of Labor of Selected Ethnic Groups in the US Labor Market," IZA Discussion Papers 1945, Institute for the Study of Labor (IZA).
  19. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  20. Moshe Semyonov & Danny Hoyt & Richard Scott, 1984. "Place, race and differential occupational opportunities," Demography, Springer, vol. 21(2), pages 259-270, May.
  21. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  22. James H. Grant & Daniel S. Hamermesh, 1980. "Labor Market Competition among Youths, White Women, and Others," NBER Working Papers 0519, National Bureau of Economic Research, Inc.
  23. Chiswick, Barry R. & Miller, Paul W., 2002. "Do Enclaves Matter in Immigrant Adjustment?," IZA Discussion Papers 449, Institute for the Study of Labor (IZA).
  24. 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.
  25. Joseph G. Altonji & Rebecca M. Blank, . "Race and Gender in the Labor Market," IPR working papers 98-18, Institute for Policy Resarch at Northwestern University.
  26. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  27. Munshi, Kaivan, 2004. "Social learning in a heterogeneous population: technology diffusion in the Indian Green Revolution," Journal of Development Economics, Elsevier, vol. 73(1), pages 185-213, February.
  28. Finis Welch, 1967. "Labor-Market Discrimination: An Interpretation of Income Differences in the Rural South," Journal of Political Economy, University of Chicago Press, vol. 75, pages 225.
  29. Borjas, George J, 1983. "The Substitutability of Black, Hispanic, and White Labor," Economic Inquiry, Western Economic Association International, vol. 21(1), pages 93-106, January.
  30. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  31. Glenn C. Loury, 1998. "Discrimination in the Post-Civil Rights Era: Beyond Market Interactions," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 117-126, Spring.
  32. George J. Borjas, 1986. "Immigrants, Minorities, and Labor Market Competition," NBER Working Papers 2028, National Bureau of Economic Research, Inc.
  33. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  34. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162.
  35. Sanjeev Goyal, 2003. "Learning in Networks: a survey," Economics Discussion Papers 563, University of Essex, Department of Economics.
  36. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2050. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.