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Wage Gaps And Demographic Behavior Essay, Research Paper

WHY ARE RACIAL AND ETHNIC WAGE GAPS LARGER FOR MEN THAN FOR WOMEN?

EXPLORING THE ROLE OF SEGREGATION USING THE

NEW WORKER-ESTABLISHMENT CHARACTERISTICS DATABASE

Kimberly Bayard, Judith Hellerstein, David Neumark, and Kenneth Troske*

September 1998

*Bayard is a Ph.D. student in economics at the University of Maryland. Hellerstein is Assistant Professor of Economics at the University of Maryland, and a Faculty Research Fellow of the NBER. Neumark is Professor of Economics at Michigan State University, and a Research Associate of the NBER. Troske is Assistant Professor of Economics at the University of Missouri. This research was supported by NSF grant SBR95-10876 through the NBER. The research in this paper was conducted while the authors were research associates with the Center for Economic Studies, U.S. Bureau of the Census. Research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the Bureau of the Census or the Center for Economic Studies.

Abstract

We examine the possible sources of the larger racial and ethnic wage gaps for men than for women in the U.S. Specifically, using a newly created employer-employee matched data set containing workers in essentially all occupations, industries, and regions, we examine whether these wage differences can be accounted for by differences between men and women in the patterns of racial and ethnic segregation within occupation, industry, establishments and occupation-establishment cells. To the best of our knowledge, this is the first paper to examine segregation by race and ethnicity at the level of establishment and job cell. Our results indicate that greater segregation between Hispanic men and white men than between Hispanic women and white women accounts for essentially all of the higher Hispanic-white wage gap for men. In addition, our estimates indicate that greater segregation between black and white men than between black and white women accounts for a sizable share (one-third to one-half) of the higher black-white wage gap for men. Our results imply that segregation is an important contributor to the lower wages paid to black and Hispanic men than to white men with similar individual characteristics. Our results also suggest that equal pay types of laws may offer some scope for reducing the black-white wage differential for men, but little scope for reducing the Hispanic-white wage differential for men.

I. Introduction

Labor economists have long been occupied with explorations of the sources of wage differences by sex, race, and ethnicity. It is well known that wages earned by minorities and by females fall short of wages earned by white males, after accounting for differences in standard human capital proxies and other variables for which measures are readily available in many micro-level data sets (schooling, age or experience, marital status, urban residence, region, etc.).

Aside from this general fact, an additional fact about racial and ethnic wage gaps is that they are considerably larger for men than for women. This is true in the raw data, as well as once we account for numerous determinants of wages or earnings. For example, based on 1981 CPS data, Cain (1986, Table 13.4) reports that for all workers, black-white earnings ratios are 0.67 for men vs. 0.97 for women, while Hispanic-white earnings ratios are 0.72 for men and 0.90 for women. For full-time, year-round workers, black-white earnings ratios are 0.69 for men vs. 0.90 for women, while Hispanic-white earnings ratios are 0.72 for men and 0.87 for women.(1) As a second example, as we report later in this paper, in log wage regressions including controls for schooling, age, etc., based on the 1990 Census of Population, the estimated black-white (actually, black vs. non-black, non-Hispanic) earnings differential is -0.121 for men vs. -0.022 for women, while the Hispanic-white differential is -0.115 for men vs. -0.045 for women. Finally, in a cross-section of 1990 and 1991 observations from the NLSY, in log wage regressions with no controls Neal and Johnson (1996) report that black men earn 24.4 percent less than white men vs. an 18.5 percent shortfall for black women, while Hispanic men earn 11.3 percent less than white men vs. a 2.8 percent (and insignificant) shortfall for Hispanic women.

When Neal and Johnson control for AFQT (interpreted as a catch-all for pre-market factors affecting wages), the black-white difference for men falls to -7.2 percent, while black women are estimated to earn 3.5 percent more than white women (an insignificant difference).(2) Thus, even if one believes the Neal and Johnson claim that pre-market factors account for a sizable fraction of racial and ethnic wage differences, the fact that the difference in the black-white wage gap between men and women persists suggests that this difference is a “labor market” rather than a “pre-market” phenomenon.

In our view the larger racial and ethnic wage gaps for men than for women are a rather striking set of stylized facts that have largely been ignored by researchers attempting to understand the sources of racial and ethnic wage differences. In this paper we examine more closely the possible sources of the differences in the wage gap, paying particular attention to whether these differences can be accounted for by differences between men and women in the patterns of racial and ethnic segregation.(3) More generally, we believe that research on why racial and ethnic wage gaps differ by sex may ultimately prove useful in helping to understand the sources of these gaps. For example, if one believes that the observed wage differentials are the result of employer or customer discrimination (e.g., Darity and Mason, 1998) then one needs to try to explain why this discrimination

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