Racial wage differentials among young adults: Evidence from the 1990s

This study seeks to decompose wage differentials between black and white male young adults into those related to labor market discrimination and those resulting from human capital endowments. The importance of testing for significant differences in wage equations before conducting decomposition analysis is emphasized. Study results demonstrate that ignoring correction for the sample selection bias resulting from black-white differences in the probability of being employed would lead to an underestimation of the size of wage differentials. The study also shows that the results of models based on different assumptions regarding the nondiscriminatory wage structure might lead to different conclusions pertinent to the extent of labor market discrimination. Implications for public policy development are discussed. His current research interests include consumption economics, income distribution, and international comparative analyses of households' resources allocation. He received his Ph.D. from the University of Missouri at Columbia. Her current research interests include family financial distribution and wellbeing and individual and family resource management. She received her Ph.D. from Iowa State University.     

WAGE DISCRIMINATION ACROSS ETHNIC GROUPS: EVIDENCE FROM ISRAEL

We investigate wage differentials between ethnic groups in Israel, proposing a new methodology and an illustration based on the latest Israeli census. By using separate wage equations for the various occupations, our methodology allows us to decompose the wage differential into three components: one reflecting human capital differences; one reflecting wage discrimination; and a third indicating occupational segregation. We find that 70 percent of the wage gap is due to segregation, 26 percent to wage discrimination and only 4 percent to human capital differences. Evidence is also found for the existence of duality in the Israeli labor market.     

A MODEL and SOME EVIDENCE CONCERNING THE INFLUENCE OF DISCRIMINATION ON WAGES

The observed wage gap between men and women is widely attributed to discrimination in the workplace. Yet within the context of the standard neoclassical framework, discrimination is neither a necessary nor sufficient condition. This paper presents a modified neoclassical model which supports equilibrium wage differentials and which has testable implications. The paper also surmounts a difficulty that has plagued many earlier assessments–separating prejudice from other explanations of the wage gap. By directing attention away from wages to other implied effects of discrimination, our model offers cleaner tests of the impact of prejudice in labor markets. Results of such tests are reported.     

Comparative advantage and the welfare effects of uniform wage policies

This paper analyzes the theoretical impact of a commonly cited union goal — the elimination or reduction of wage differentials within occupations. By dropping the usual assumption of homogeneous labor, we show how, and under what market conditions, workers will receive rents due to individual comparative advantage. In competitive labor markets a union-imposed uniform wage may lower the earnings of workers holding a productive advantage, causing a reduction in employment and a welfare loss of comparative advantage rents. The implications of a strict uniform wage rule imply that unions may be forced to adapt their wage policy to allow more productive workers to receive wage differentials. This consideration helps explain some common trade union institutions.     

Economic Theories of Low-Wage Work

This article examines economic theories of the low-wage labor market to increase understanding of economic inequality and poverty in the United States, particularly related to the labor market. On the one hand, neoclassical, labor monopsony, and Harris-Todaro models explain how minimum wage policies are related to supply and demand of labor, human capital, employment, and unemployment. On the other hand, the efficiency wage model, the dual labor market theory, and technology development and globalization account for the causes of the wage differentials. This article includes a conceptual map that illustrates the interrelationships between these economic theories of low-wage work.     

EFFICIENCY WAGES AND EQUILIBRIUM WAGES

We present a labor market model that allows as special cases a market paying equilibrium wages, one paying disequilibrium efficiency wages, and a market combining the two. Our analysis indicates that industrial wage differentials are not necessarily evidence of efficiency wages. Such differentials may be explained by differences across industries in labor performance standards or in the accuracy with which worker effort can be measured. We do find, however, that the relationship between wages and dismissals can be used to distinguish a market paying equilibrium wages from one paying efficiency wages.     

Do ENDAs End Discrimination for Behaviorally Gay Men?

Twenty-two states have implemented state Employment Nondiscrimination Acts (ENDAs) making sexual orientation discrimination illegal, and Congress has repeatedly considered a federal ENDA. However, we know very little about the impact of existing ENDAs and the likely impact of future ENDAs. I describe the implementation of ENDAs and highlight their shortcomings relative to federal employment nondiscrimination law. Despite their shortcomings, I show that state ENDAs decrease wage differentials by roughly 20 % for behaviorally gay men. ENDAs appear to reduce this wage differential by reducing the portion of wage differentials typically associated with discrimination. These results inform a contemporary policy debate over the necessity and impact of expanded protection from discrimination for gay men. (JEL J1, J3, J7)     

The Impact of Labor Market Structure on Sex Differences in Earnings

This research examines how structural features of a labor market affect the size of the male-female earnings differential in that market. Theoretical predictions are tested using data on the earnings of male and female academics in the US. Measures of labor market structure are shown to be significantly associated with the size of the earnings differential in 56 labor markets corresponding to specific academic disciplines. As predicted, an oversupply of labor within a market and greater career embeddedness in a single organization within a market increased the size of the earnings gap between men and women. Contrary to predictions, greater flows of information in the market and market permeability had no impact on the size of the earnings differential within markets. In addition, higher percentages of women in the market decreased the wage differential within markets. Additional analysis at the individual level found that men were penalized less than women when labor market conditions led to lower wages. Findings generally support the theoretical position that structural characteristics of the labor market affect the ability of employers to engage in salary discrimination against women.     

The labor supply of male Hispanic immigrants in the United States

"Several recent studies have begun the systematic analysis of the labor market characteristics of Hispanics in the United States. This research has focused on two related issues: a) how the immigration and assimilation experience affects Hispanic earnings; and b) the measurement of wage differentials between Hispanics and non-Hispanics. The main findings of this research are that the earnings of (some) Hispanic immigrants rise rapidly after immigration; and that the wage differential between Hispanics and non-Hispanic whites is generally due to differences in observable skill characteristics. This article extends previous research by focusing on another labor market characteristic: the labor supply of Hispanic immigrants."     

LABOR IMMOBILITY AND THE FORMATION OF GENDER WAGE GAPS IN LOCAL MARKETS

Family ties have an important effect on the wage gap between male and female workers because wives are often more geographically tied to their husband's location, which may not be the best market for the wife's skills. Theory implies a testable inverse relationship between urban size—reflecting labor market size—and male-female wage differentials. Our results indicate that the wage gap between married men and women narrows with urban size. About 17 percent of the wage gap between married men and women can be accounted for by urban size—or, more fundamentally, by geographic immobility due to the family tie constraint.     

Interfirm wage differentials in a local labor market: The case of the fast-food industry

We examine interfirm wage differentials among fast-food restaurants in Atlanta, Georgia to determine the degree to which these differentials correspond to the predictions of competitive theory. While no definitive test is possible, given our inability to control all sources of wage variation, the evidence nevertheless suggests that the wage structure is largely shaped by competitive forces, albeit in a relatively complex manner due to differences in a host of factors that the simple version of the theory holds constant. Evidence is also found, on the other hand, that the supply curve of labor to the individual firm slopes upward for experienced workers and that a small noncompensating wage differential may exist that is related to variation in each restaurant's ability to pay.     

EFFICIENCY WAGE MODELS OF UNEMPLOYMENT: A SECOND VIEW

Efficiency wage models, in which firms find it profitable to pay wages above workers' reservation wages, provide a promising explanation for unemployment and interindustry wage differentials. One criticism of such models is they imply firms should sell jobs by requiring up-front bonds from new workers. However, only some efficiency wage models imply this. Moreover, firms might not require bonds for many reasons. We show that moral hazard and adverse selection models together explain many labor market phenomena. The efficiency wage model conforms well to empirical finding, but certain anomalies suggest the need to consider rent-sharing models.     

Union rent seeking and import competition

conclusion We empirically evaluate two issues: (1) how the union rent seeking responds to import competition and (2) whether union bargaining power, as proxied by the proportion of the labor force in an industry that is unionized, moderates the impact of import com-petition on union wage differentials. Unlike other studies, our emphasis is on the influ-ence of import competition on union rent seeking, rather than on union wages per se. Our primary results indicate that while import competition negatively and significantly affects union rent seeking, the extent of unionization does not substantially influence the impact of import competition on the union wage differentials. This is a somewhat surprising result since the literature suggests that union wages are greater in the pres-ence of stronger unions.     

Sexual Orientation and Wage Discrimination in France: The Hidden Side of the Rainbow

This article is the first study to present an econometric evaluation of wage discrimination based on sexual orientation in the French labor market. Having identified same-sex couples using the French Employment Survey, we estimate the wage gap related to sexual orientation in the private and public sectors, in order to analyze whether or not lesbians and gays suffer a wage penalty. The results obtained show the existence of a wage penalty for homosexual male workers, as compared with their heterosexual counterparts, in both the private and public sectors; the magnitude of this discrimination varies from about ?6.5?% in the private sector, to ?5.5?% in the public sector. In the private sector, the wage penalty suffered by gay employees is higher for skilled workers than for the unskilled, and??in both sectors??the wage penalty is higher for older workers than for younger ones. As with many other countries, we do not find any evidence of the existence of a wage discrimination against lesbians.     

WAGE DIFFERENTIALS ACROSS LABOR MARKETS AND WORKERS: DOES COST OF LIVING MATTER?

Wage differential studies rarely account for interarea differences in cost of living, owing both to data limitations and theoretical ambiguity. This study develops a price index for 185 metropolitan areas comprising about 70% of the U.S. labor force. Current Population Survey data for 1985–95 and data on site-specific amenities are used to estimate earnings differentials based on nominal wages, wages fully adjusted for measured cost of living, and a simple approximation of "real" wages with partial adjustment for price-level differences. Dispersion in approximate real wages across 185 labor markets and differentials by region and city size are substantially lower than dispersion in nominal or full adjustment wages. Estimates of racial and ethnic differentials display moderate sensitivity to choice of a wage measure, whereas other standard differentials do not. Both nominal wages and wages fully adjusted for cost of living may provide misleading estimates of real wage differentials. Absent data on interarea prices and amenities, researchers should include detailed controls for region and city size in nominal wage equations. ( JEL J31, R23)     

LABOR MARKET DYNAMICS WITH SEARCH FRICTIONS AND FAIR WAGE CONSIDERATIONS

Fairness considerations in wage setting can improve the ability of the Diamond‐Mortensen‐Pissarides search and matching model to account for U.S. labor market dynamics. Firms' production is influenced by workers' effort input, which depends on whether workers consider the employment relation as fair. A typical worker's effort is determined in a comparison of individual current wage with wage norms, including the outside option, the individual past wage, and the wage level in the steady state. The fairness considerations in the search framework give rise to endogenous real wage rigidity, and realistic volatilities of unemployment, vacancies, and labor market tightness. (JEL E24, E32, J64)     

CUSTOMER DISCRIMINATION AND AFFIRMATIVE ACTION

This paper shows that under constant returns to scale and free entry, customer discrimination unlike employer or employee discrimination, can cause long-run wage differentials. The general equilibrium impact of affirmative action policies on wages, productivity and unemployment is contrasted under these types of discrimination. The empirical literature on affirmative action is surveyed in light of these models and some support is found for models of employer prejudice. Finally, by changing the composition of output, affirmative action policies raise the probability of a nondiscriminatory general equilibrium outcome under customer prejudice.     

The Immigrant Wage Gap in Germany: Are East Europeans Worse Off?

Using employment register data, this study compares the outcomes of male foreign workers from different East and West European countries who entered the German labor market between 1995 and 2000 with those of male German workers. Although the wage differentials are highest for Poles, results from Oaxaca/Blinder type decompositions show that the East Europeans are not generally worse off. Actually, we find considerable heterogeneity also within nationality groups. Quantile decompositions show that coefficients effects tend to be larger at the bottom of the wage distribution and, by that, give evidence for sticky floors.     

SOFT SKILLS,HARD SKILLS,AND THE BLACK/WHITE WAGE GAP

This study examines the relative importance of soft skills versus hard skills across occupations and its impact on the observed wage gap between Blacks and Whites in the United States. It posits that the Black/White pay gap may vary across occupations that require the use of different types of skills. We classify occupations into hard‐skill intensive versus soft‐skill intensive jobs using the skill content measures of different occupations from the Occupational Information Network (O*Net). We then use data from the National Longitudinal Survey of Youth (NLSY) and Current Population Survey (CPS) to investigate the impact of job skill type on the wage gap. Consistent with our theoretical predictions, we show that this wage gap in white‐collar jobs is smaller for hard‐skills jobs than it is for soft‐skills jobs. Moreover, we demonstrate that, in response to variations in the wage gap across different occupations, Blacks are more likely to self‐select themselves into hard‐skills jobs, ceteris paribus. This shows not only that discrimination against Blacks varies across occupations, but also that such discrimination induces the self‐selection of Blacks into certain occupations. Moreover, this finding highlights the role played by co‐worker/customer discrimination in explaining the racial wage gap in the U.S. labor market. (JEL J15, J31)     

Anti-Discrimination vs. Anti-Poverty? A Comparison of Pay Equity and Living Wage Reforms

SUMMARY

Welfare reform focuses attention on the potential of pay equity and living wage strategies to move women out of the ranks of the working poor. In this study, we use data from a large municipality in the Northeast to simulate implementation of the two policies and compare their relative effectiveness in raising the earnings of female- and minority-dominated jobs, narrowing gender- and race-based earnings differentials, and lifting workers out of poverty. Results show that pay equity raises salaries across-the-board, but especially among low-skilled and minority-dominated jobs, and closes the wage gap. Both pay equity and living wage dramatically reduce the incidence of poverty; living wage, however, leaves virtually untouched the type of discrimination targeted by pay equity and has little impact on the wage gap. The implications of these results for addressing the needs of women transitioning off public assistance and wage justice are discussed. We conclude that both policies should be an integral part of welfare reform efforts, as well as key planks in an overall wage justice strategy.