Photo: The American
It’s well-known that African-Americans suffer from an unemployment rate higher than the national average. Currently, the African-American unemployment rate is a staggering 16.0%, versus the national unemployment rate of 9.1%.Wages are also an issue. According to Census Bureau data (via Freakonomics), black men earn around 25% less than white men.
Roland Fryer, Harvard economist and recipient of the MacArthur genius grant, set out to better understand this wage gap. His findings are published in a paper titled Racial Disparities In Job Finding and Offered Wages. Here’s the abstract:
The extent to which discrimination can explain racial wage gaps is one of the most divisive subjects in the social sciences. Using a newly available dataset, this paper develops a simple empirical test which, under plausible conditions, provides a lower bound on the extent of discrimination in the labour market. Taken at face value, our estimates imply that differential treatment accounts for at least one third of the black-white wage gap. We argue that the patterns in our data are consistent with a search-matching model in which employers statistically discriminate on the basis of race when hiring unemployed workers, but learn about their marginal product over time. However, we cannot rule out other forms of discrimination.
While it is not much of a surprise that race plays a role in the pay gap (a third of the gap), Fryer’s findings regarding the tightening pay gap over time is notable.
Within firms, however, racial wage gaps are predicted to decrease with tenure, as employers learn about a worker’s marginal product. Using both our data and detailed data on work histories from the NLSY79, we show that the data are consistent with this prediction. In our data from the state of New Jersey, for instance, blacks experience a 1.1 percentage points higher return to tenure than whites. Extending the empirical work of Altonji and Pierret (2001), we demonstrate that although the black-white wage gap widens by 0.9 percentage points per year of potential labormarket experience, it decreases by 1.2 percentage points per year of tenure with a given employer.
Bottom line: African-Americans may earn less than their peers when they start a new job. But the more they prove themselves while on the job, the more that pay gap shrinks.
Fryer argues that these findings suggest policies to prevent discrimination during the hiring process should be pushed forward.