Working Paper: NBER ID: w4755
Authors: David Card; Thomas Lemieux
Abstract: Despite several decades of research there is still widespread disagreement over the interpretation of the wage differences between black and white workers. Do the differences reflect productivity differences, discrimination, or both? If lower black earnings reflect a productivity difference, then an economy-wide increase in the relative wages of more highly-skilled workers should lead to a parallel increase in the black-white earnings gap. We evaluate this hypothesis using longitudinal data for men and women from the Panel Study of Income Dynamics. Our findings suggest that returns to observed and unobserved skills of male workers rose by 5-10 percent between 1979 and 1985. For female workers, the return to observed skills was relatively constant while the return to unobserved skills increased by 15 percent. The evidence that black-white wage differentials rise with the return to skill is mixed. Among female workers the black-white wage gap widened in the early 1980s -- consistent with the premise that racial wage differences reflect a productivity difference. For men in our sample the black-white wage gap declined between 1979 and 1985 -- a change that is inconsistent with the rise in the return for skills.
Keywords: wage differentials; black-white wage gap; longitudinal analysis; labor market; productivity differences
JEL Codes: J31; J15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in the wage structure (J31) | black-white wage differentials (J31) |
| increase in the wage premium for skilled workers (J31) | black-white wage gap (J31) |
| returns to observed skills for male workers increased by 510% (J24) | widening of the wage gap (J31) |
| returns to unobserved skills increased by 15% (J24) | widening of the wage gap for female household heads (J31) |
| lower black wages due to discrimination (J79) | changes in the wage structure might not affect the wage differential (J31) |