Eliminating Race Differences in School Attainment and Labor Market Success

Between 1940 and 1980, the average school attainment of black men increased by about 1.5 years every decade, about .5 years more than for white men. Similarly, over the same period real income more than quadrupled for black men, while increasing two-and-one-half times for white men. However, considerable differences remain. In 1993, the percent of 25 to 29 year old black males who were college graduates was only half that of white males of the same age (12.6 percent relative to 24.4 percent) and earnings among 25 to 34 year old black males were only 83 percent of that of white males of the same age. This paper structurally estimates a dynamic model of schooling, work and occupational choice decisions over the life cycle that is capable of distinguishing between a number of possible explanations for the current disparities in schooling and earnings and that also permits an evaluation of the potential success of alternative interventions that might be used to equalize differences in schooling and labor market outcomes. We particularly consider the issue of the responsiveness of black male youths to monetary school performance-based incentives. We show that a relatively modest incentive scheme, providing separate bonuses for high school and college graduation, can induce a substantial response in black school attainment that leads to a near equalization in the school attainment distributions of blacks and whites.