Racial Wage Gaps and test Score Differences: Incentives vs. Pre-Market Factors
We use a simple model of statistical discrimination to empirically disentangle two different sources of racial wage inequality: differences in the distribution of pre-market factors that affect human capital, and differences in incentives to acquire human capital when young. We show how the equilibrium restrictions from the model help us identify such factors. We estimate the parameters of the model using NLSY data on wage, education, and AFQT test scores.
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