The Differing Nature of Black-White Wage Inequality Across Employment Sectors

This paper argues that the underlying causes of racial wage inequality may dif- fer across labor market sectors. In particular, because employers hiring for jobs in the more highly skill-intensive sector have a greater incentive to accurately as- sess worker skill than employers hiring for jobs in the less skill-intensive sector, these more skill-intensive employers also have incentives to invest more in skill re- vealing technology, and thereby obtain more precise information regarding worker skill, than less skill-intensive employers. Under some technologies, these cross sec- tor information differences will lead to several implications regarding racial wage inequality. Most notably, (i) after controlling for worker skill, very little racial wage inequality should remain in the highly skill-intensive sector, yet substantial racial wage inequality may remain in the less skill-intensive sector, and (ii) workers from the relatively worse paid group should be more likely than similarly skilled workers from the better paid group to work in the highly skill-intensive sector. Using data from the NLSY, I find empirical support for these implications. Specifically, after controlling for pre-market academic skills, the entire racial wage gap disappears in the highly skill-intensive sector, but almost half of the unconditional gap remains in the less skill-intensive sector. Furthermore, I find that black workers are roughly 25 percent more likely than similarly skilled white workers to work in the highly skill-intensive sector.