DLLR's Division of Labor and Industry

Introduction

Just as a wage gap can be found in earnings of men and women, a wage gap also exists among some racial and ethnic groups in America. The controversial question is why the wage gap exists - to what factors can it be attributed? Research suggests various answers - skill disparity, differences in work patterns, differences in choice of industry/occupation, economic changes, and discrimination. Each of these possibilities has different policy implications. Before any progress can be made in eliminating wage disparity between racial and ethnic groups, it must be determined which of the possibilities is responsible for the wage gap.

Education

One's level of education plays a big role in how much one earns and will earn in the future. The combination of data on level of enrollment and level of completion give a clear picture of how different groups measure up to one another. U.S. Census data on enrollment in primary, kindergarten, elementary, high school, college, and college as a full time student, reveals that while enrollment is very similar among racial and ethnic groups for kindergarten through high school, it varies substantially for college and college full-time enrollment. While whites' college enrollment is at 23%, blacks' is at 20%, Hispanics' is at 16%, and Asians' is at 35%. For full time college enrollment, whites' is at 16%, blacks' at 13%, Hispanics' at 10%, and Asians' at 26% (U.S. Census - 2).
However, rates of enrollment do not tell the whole story. While rates of enrollment are very similar among all groups for high school, Hispanics' and blacks' rates of high school completion are lower than those of whites and Asians. According to the U.S. Census Bureau, of all eighteen through twenty-four year olds who were included in the census in 2000, 91.8% of whites, 83.7% of blacks, 64.1% of Hispanics, and 94.6% of Asians completed high school (NCES - 2). A similar trend can be found for college completion. According to the Integrated Postsecondary Education Data System (IPEDS) Graduation Rate Survey published in 2003, blacks and Hispanics complete college at lower rates also. Of all people who began college in 1997, 59% of whites completed college within six years or less, while only 40% of blacks and 42% of all Hispanics that began college in 1997 completed it within the same time period. A huge gap exists also in advanced degrees. According to the U.S. Census Survey of Income and Program Participation of 2001, out of the total 16,180,000 advanced degrees held by people in America, 82.4% were held by whites, 6% were held by blacks, 3.6% were held by Hispanics, and the rest by other minorities (U.S. Census - 1). As the data reveals, at practically all levels of education, blacks and Hispanics have a lower level of participation and completion.

Table 1:  Group Completion Rates

* 18- through 24-year-olds who had completed high school, by race/ethnicity: October 2000
** First-Time-In-College, Bachelor-Degree-Seeking Students Enrolled fall 1997 Who Graduated from the Same College or University by August 2003, IPEDS GRS.

Why is education so important? It has been proven in various research that level of education and earnings have a positive correlation. A study conducted by the U.S. Census Bureau and published in "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings" displayed this correlation. In estimating the work-life earnings for full-time workers of different education levels, the article revealed that while a white non-high-school graduate would earn 1.1 million over a life time, the same individual with an advanced degree would earn almost three times the amount at 3.1 million dollars. For a black individual a similar trend of earning growth exists with experience, however, non-high school graduates would start out at .8 million dollars, while a person with an advanced degree would earn 2.5 million. The data for Hispanics and Asians is very similar to that of blacks, except at the advanced degree level, Asians' earnings mirror those of whites at 3.1 million (Cheeseman Day, 7). Thus, while ultimately, blacks and Hispanics earn less than whites of roughly the same level of education, there is a great return on education for all racial and ethnic groups. In fact, the return on education is greater for blacks and Hispanics because in calculating the increase in earnings of a person who starts out without even a high school degree and then works his way up to an advanced degree, the increase in earnings for whites is 280%, while for blacks and Hispanics it is 315%. The fact that the return on education is actually greater for black men than for white men is also confirmed by the National Center for Education Statistics. Their study showed that in 2003, black college graduates earned 60% more than black high school completers, while black high school completers earned 30% more than black workers who dropped out. On the other hand, whites with a bachelor's degree or higher earned just 20% more than whites who finished high school (NCES - 1).

Wages are not only affected by the level education of the individual, but also correlate to the level of education of the individual's parents. For whites and blacks whose parents had less than a college education, whites consistently earn more than blacks. However, in a situation where the parents had some college education or more, blacks earn more than their white counterparts (Black, 19).

While various data demonstrate that blacks and Hispanics are less educated than whites and Asians when measuring by degrees earned, the question that remains is why an earnings gap remains for people of roughly the same level of education but of different racial or ethnic groups. One explanation is that the data available often does not control for both level of education and years of experience. Just as in comparing wages of men and women, women of all ages tended to have less work experience than men, differing work patterns of different racial and ethnic groups may have an affect on wages and earnings.

Work Patterns

Various resources show that a greater percentage of black and Hispanic men than white and Asian men do not participate in the labor force; of those people who are in the labor force, there are twice as many blacks unemployed as whites. Moreover, blacks and Hispanics tend to work fewer weeks per year and fewer hours per week, are overrepresented in temporary and on-call work, and tend to be unemployed for longer periods of time than whites.

Rates of participation in the labor market, as well as rates of employment and unemployment are one way to compare work experience among racial and ethnic groups, which could explain some of the gap in wages and earnings. The U.S. Census Bureau report showed that in 2000 white people had a higher rate of participation in the labor force, than blacks, Asians, and Hispanics, with 64.6% of the total white population, 60.2% of the black population, 63.3% of the Asian population, and 61.4% of the Hispanic population, participating. The same report showed that among all people in the labor force in 2000, blacks had a higher rate of unemployment than whites; the unemployment rate for whites was 3%, for blacks 6.9%, for Hispanics 5.7%, and for Asians 3.2%. A review of the U.S. Census data for different years shows that the gaps in the rates of unemployment among different groups have proportionally persisted over the years. Whether it is by choice or due to other factors, statistically, black, Hispanic, and even Asian people overall are employed less than whites (Spalter-Roth, 2).

Table 2: Labor Force Participation, Employment, Unemployment in 2000*

*Original Source: U.S. Census Bureau, 2000. "Profile of Selected Economic Characteristics." Census 2000, Summary File 4, DP-3. 

The differences in number of weeks worked per year and number of hours worked per week by the different racial and ethnic groups may also reveal information about the gap in wages and earnings. According to the California labor market data, among all working men compared in 2000, blacks worked 46 weeks per year on average, while whites worked 48. In terms of hours worked per week, blacks and Hispanics worked about 41 hours per week, while whites worked 44 hours per week (Reed). This is also reflected when hourly wages are compared to annual earnings. According to "Basic Skills and the Black-White Earning Gap" by Neal and Johnson, black men in America earn 48% less per year than whites of the same age, even though their wages are only 24% lower (Johnson, 12). This statistic suggests that black men may be working less time overall.

The type of jobs people hold can greatly affect their wages also. According to "The Big Payoff" the earnings of workers who work full time year round tend to be significantly higher than the earnings of workers who work part time or just part of the year (Cheeseman Day, 2). When compared to whites, blacks' and Hispanics' participation in non-standard work (regular part-time, temporary help agency, on-call/day labor, self employed, independent contractor) is proportional to the size of its population, and maybe even slightly low. However, in two worst areas of non-standard jobs - temporary and on-call labor, both of which tend to pay little and offer few benefits, if any, blacks and Hispanics are over represented. While blacks made up only 12% of the U.S. population in 1997, they made up 20% of all temp workers in the U.S. In the same year, Hispanics represented 13% of the temp workers and 15% of all on-call/day laborers (Hudson, 12). Moreover, whether people work full-time or non-standard jobs is often closely tied to their level of education. For example, according to "The Big Payoff," high school dropouts are less likely to work full time and year round than people with bachelor's degrees. While only 65% of high school dropouts worked full time and year round in 2000, 77% of people with bachelor's degrees worked the same amount (Cheeseman Day, 2).

Another important factor that must be considered is whether there are differences between how long people of different racial and ethnic groups are unemployed. Hispanics and blacks are more likely than whites to be unemployed for longer periods of time. In 2000, 29% of all long-term unemployed Americans were black, 16.9%, were Hispanic, and 48.3% were white. When compared to the percentage each racial and ethnic group makes up in the total population (whites - 69%, blacks - 16%, and Hispanics - 12%), it is clear that blacks and Hispanics are disproportionately represented among the long-term unemployed group. Moreover, when compared to the 20% that blacks made up of the total unemployed in 2000, the 29% is very high. Of all people long-term unemployed, blacks had the highest percentage of people that were unemployed for over six months at 22.7%, while whites had 17.6%, and Hispanics had 14.2% (Stettner, 2).

Table 3: Long-Term Unemployment

* % rate of the Long Term Unemployed

Choice of Industry/Occupation

Besides the differences between racial and ethnic groups in work patterns, differences can also be found in their choices of industry and occupation. According to the U.S. Census Survey of 2000, 35.6% of white men, and 44.6% of Asian men were employed in managerial, professional and related occupations, compared with 25.2% of black men and just 18% of Hispanic men. On the other hand, about 40% of black and Hispanic men held jobs in service, production, transportation, and material moving occupations, compared to 27% of white men and Asian men. A disproportionately high percentage of black and Hispanic women compared with white and Asian women held jobs with poor pay, few benefits, and little career mobility such as food preparation, cleaning, and personal care (Spalter-Roth, 4).

Table 4: Occupational Data for Employed Population 16 and over*

*Original Source: U.S. Census Bureau, 2000. "Profile of Selected Economic Characteristics." Census 2000, Summary File 4, QT-P28.

These statistics beg the question why people of different races end up in different occupations. One answer is obvious - differences in education.; because a great percentage of blacks and Hispanics do not acquire a high school or a college degree, they work jobs in service, production, transportation, and material moving. Another reason may be the existence of so called "ethnic niches". New York city provides a broad example of ethnic niches; there, Hispanics predominantly work in construction, Asians run laundry mats and dry cleaning businesses, white men work as fire fighters, etc. While such niches can help members of the prevalent racial or ethnic group at that job obtain a job by providing training and shelter from discrimination, such jobs pay less, and can often constrain job mobility. Once an ethnic niche is created in a certain occupation or industry the desirability and availability of the job becomes limited (Spalter-Roth, 5).

Another difference could be simply the variation in choices made by people of different racial and ethnic groups in college. According to "Why Do Minorities Earn Less? A Study of Wage Differentials among the Highly Educated", the index of dissimilarity indicates that 14% of Hispanic men, 20% of black men, and 31% of Asian men would need to change their major to match the distribution of majors among whites. Asians, for example, are more likely to major in engineering than any other group, while black men tend to be underrepresented in engineering and over represented in education. Black men also choose majors that on average have a higher fraction of women, while Asian men choose majors that have a lower fraction of women (Haviland, 12).

One other possibility that could explain why people of different racial and ethnic groups end up in different occupations, is discrimination. Rather than looking at each person's credentials like education and experience, employers look at skin color, and base their hiring decisions on racial and ethnic identities of past employees. For example, if in all the years of a company's existence the position of vice-president has been filled by a white male, it may take a long time before a woman or a minority will be hired for that position, simply because the hiring personnel may feel more comfortable giving the position to someone who is similar to other people who have held that position in the past. Thus, blacks continue to be hired for certain types of jobs in certain occupations, reinforcing existing ethnic niches.

Skill Disparity

One important factor that may shine some light on the cause of the wage gap between racial and ethnic groups is skill. While looking at the level of education has been the traditional and common way to determine one's ability level and predict future wages, recent researchers have contended that this information can be misleading because the quality of schools and intensity of education in different schools vary greatly in America. Just as age is not a valid predictor of one's level of education, the amount of schooling one has doesn't truly reveal that person's ability. In "The Role of Premarket Factors in Black-White Wage Differences" Derek Neal and William Johnson discuss a different measure of education - skill. For their research, Neal and Johnson used the scores from the Armed Forces Qualification Test (AFQT) found in the National Longitudinal Survey of Youth, to examine the black-white wage gap among workers in their late twenties (age 26-29). The AFQT is known to be a racially unbiased measure of basic skills that helps predict job performance, and is often used in military testing. The data set included a sample of individuals who were tested at ages 16-18, just before they entered the labor force full time or began their secondary education. Testing for math and reading skills, the results of the test revealed that three-fourth of the racial wage gap for men is due to a skill disparity. For women, the test scores explained all of the wage disparity. In fact, when the AFQT scores were held constant for white, black, and Hispanic women, black and Hispanic women earned more than white women.

Carneiro, Heckman, and Masterov, the authors of "Labor Market Discrimination and Racial Differences in Premarket Factors," sampled the children of the mothers in the 1979 NLSY to see if ability disparity can be found in children before they enter school. Their data from the Children of the National Longitudinal Survey of Youth of 1979 (CNLSY79), showed that minorities do in fact enter school with lower measured ability than whites, and the gap in ability widens as the children obtain more schooling. However, the increase in gap with schooling is much less significant than the original gap. According to the CNLSY79, 5-6 year old black boys scored 18 percentile points below white boys of the same age, while Hispanic boys scored 16 percentile points below white boys. These findings are consistent for the different tests and in various data sets. Schooling, rather than closing the gap, substantially widens it. By ages 13 to 14, the gap in scores widens to 22 percentile points for blacks, and remains the same for  Hispanic boys at 16%. Therefore, when they enter the market, they have a much poorer set of skills than whites.

Besides the disparity that exists in cognitive skills, disparity is apparent also with non-cognitive skills such as motivation, self control, time preference, and social skills. In the CNLSY, mothers were asked age-specific questions about the anti-social behavior of their children, including aggressiveness, violent behavior, cheating, lying, disobedience, peer conflicts, and social withdrawal. The results showed that by age 5 and 6, the average black is roughly 10 percentile points above the average white (the higher the score, the worse the behavior). This gap is important because non-cognitive skills are directly related to what the labor market calls "soft-skills". These skills involve ease of interaction with colleagues and customers, enthusiasm and a positive work attitude - all skills essential in a service driven economy. Thus, if such disparities in social ability exist at such a young age, they can have very negative effects in the future, unless some sort of intervention occurs (Carneiro, 19-20). In fact, it has been documented that black men are at a particular disadvantage during job interviews, because their body language and communication skills often do not meet employer expectations regarding politeness, indications of motivation, or enthusiasm (Spalter-Roth, 7).

All of this information on skill disparity begs for some explanation for the cause of the skill disparity between racial and ethnic groups. According to Neal and Johnson, the ability disparity can be explained by varying school and home environments. In fact, the authors found that children's scores on the AFQT correlated with the level of education and the professional status of their parents, the number of children in the family, measures of family reading material, and school characteristics of the children (including student/teacher ratio, disadvantaged student ratio, dropout rate, teacher turnover rate) (Neal, 887). According to Carneiro, Heckman, and Masterov, however, most of the important factors would be those related to the family environment, since ability gaps are substantial before children even enter school. Among the factors they mention are measures of family background, family income, mother's level of education, home environment, and mother's cognitive ability. More specifically, black and Hispanic children tend to come from much poorer and less educated families than white children. They are more likely to grow up in broken or single parent homes. The home score, which is based factors such as the number of books, magazines, toys and musical recordings available to the child, family activities, methods of discipline and parenting, learning at home, TV watching  habits, home cleanliness and safety, etc, is always higher for whites than for blacks and Hispanics (Carneiro, 8-11). All of these factors may explain the cause of the skill disparity between racial and ethnic groups.

We have addressed why the gap exists among racial and ethnic groups before school begins. Now we must address why this gap widens as the children get older and obtain more education. The positive effect of schooling on test scores is much larger for whites and Hispanics than it is for blacks. This could be explained by the fact that whites, blacks and Hispanics start school at different levels; since blacks and Hispanics start with much lower abilities than whites, their subsequent progress and success is less than that of whites. The quality of schools attended by black and Hispanic children in comparison to white children could also explain the lower effect of schooling on the former groups relative to the latter group. Thus, differential initial conditions and differential school quality may also be important determinant of the adult black-white skill gap (Carneiro, 14-17).

Another important explanation for the widening of the skill gap with schooling is expectations of the students. For instance, in a given survey, 22% blacks and Hispanics reported that they expected to die next year, in comparison to 16% of whites. Blacks and Hispanics also report higher expectation of committing a crime and being incarcerated (Carneiro, 18). Such unfortunate expectations could certainly reduce how much those two groups invest in their own human capital - how often they attend school, study, do their homework, and participate in class. All of these factors affect their skills and ability, which is subsequently reflected in future wages. There is the possibility that pessimistic expectations of black and Hispanic parents lower their investment in their children, which translates into lower levels of ability and skill of those children.

Immigration and Language Disparity

Language disparity plays an important role in wage determination, and according to "Labor Market Costs of Language Disparity: An Interpretation of Hispanic Earnings Differences" explains up to one-third of the relative wage difference between Whites and Hispanics in America. The wage disparity that is usually attributed to ethnicity, nativity, and time in the United States, can in fact be explained by differences associated with English language skills. In the data sample, all the Hispanics were divided into four groups of English  proficiency: fluent, very well, well, not well. The findings showed that Hispanic men in the fluent group have earnings insignificantly different from whites who have the same school and potential work experience, as well residency in the same geographic area. Moving a member of the "very well" group up to full English fluency would raise his wages by 10%, a "well" member to full fluency by 17%, and a "not well" member to fluency by 26% (McManus).

Similar results were found in "Why Do Minority Men Earn Less?" Here, the authors found that the status of immigration and whether English is spoken at home both affect earnings. Generally for non-immigrants, if a language other than English is spoken at home, the people earn less than those who speak only English at home. When comparing all immigrants, those who do not speak English at home earn substantially less than those who do. Moreover, when all people who do not speak English at home are compared, the immigrants earn substantially less than non-immigrants. Thus, it can be concluded that one's immigration status as well as what language one speaks at home both affect earnings. When non-immigrants of different racial/ethnic groups who speak English at home are compared, Hispanics and Asians earn just slightly less than whites. However, when all non-immigrants who do not speak English at home are compared, all groups including whites, blacks, Hispanics, and Asians earn about the same with blacks earning slightly more than whites, Hispanics earning slightly less, and Asians earning more. From the data above, it appears that immigrants who do not speak English at home are the lowest earning group in America. Unfortunately, 37% of all Hispanics, and 70% of all Asians in the U.S fall into this category (Black, 16-17).

Table 4: Wage Gaps by Language Spoken at Home and Immigration Status

Economic Changes

According to the U.S. Department of Labor, there are other things that could affect the wage disparity, and in fact made earnings more unequal during the 1980's and 1990's - these are technological change, trade liberalization, increased immigration, value of the minimum wage, and declining unionization. The economy has transitioned from being driven by manufacturing to information. Thus, as technology continues to advance, the demand for skilled workers who are able to operate the advanced technology and contribute to its development continues to grow. Moreover, technological advancements are causing the replacement of lesser-skilled jobs with automated devices, and thus demand for lesser-skilled workers is dropping. This situation is aggravated by the increase in immigration that has been occurring since 1965. Particularly, less-skilled workers with lower education levels have and continue to immigrate to the U.S., which increases the competition for unskilled jobs and drives wages down for unskilled-workers. Expanded trade also drives down the wages of low-skilled workers because it displaces the goods they produce. A decline in unionization in the 1980's has also contributed to increased wage inequality, because fewer workers are benefiting from collective bargaining. Finally, the minimum wage fell in real terms during both the 1970's and 1980's reaching a level in 1990 significantly below its 1960 level.

Conclusion

What does all of this information mean? It is important to have a clear understanding of whether the wage disparity is a result of discrimination in rewarding blacks and Hispanics, or is a result of the disparity in education, skills, hours of work, types of work, and types of job, that exist among different racial and ethnic groups. The distinction is important because the two different explanations have different policy implications. "If persons of identical skill are treated differently on the basis of race or ethnicity, a more vigorous enforcement of civil rights and affirmative action in the market place would appear to be warranted. If the gaps are due to unmeasured abilities and skills that people bring to the labor market, then a redirection of policy towards fostering skills should be emphasized" (Carneiro, 3).

Bibliography

Black, Haviland, Sanders and Taylor, Lowell. "Why Do Minority Men Earn Less: A Study of Wage Differentials Among Highly Educated". Department of Economics, Syracuse University, 2004.

Carneiro, Heckman and Masterov, Dimitry. "Labor Market Discrimination and Racial Differences in Premarket Factors". Institute for the Study of Labor. January 2005.

Cheeseman Day, Jennifer, and Newburger, Eric. "The Big Payoff: Educational Attainment and Synthetic Estimates of Work Life Earnings" U.S. Census Bureau. July 2002.

Dunifon, Rachel. "Race and Gender in the Labor Market", Joint Center for Poverty, 1999, Vol III, No.1.

Hudson, Ken. "No Shortage of Non-Standard Jobs". December 1999.

Integrated Postsecondary Education Data System. "Graduation Rates for Selected Bachelor-Degree-Granting Colleges by Race/Ethnicity and Gender".

Johnson, William, and Neal, Derek. "Basic Skills and the Black White Earnings Gap".

McManus, Walter. "Labor Market Costs of Language Disparity: An Interpretation of Hispanic Earnings Differences", American Economic Review, September 1985.

National Center for Education Statistics (NCES). "Annual Earnings of Young Adults by Race/Ethnicity." 2005.

National Center for Education Statistics (NCES). "Dropout Rates in the United States: 2000".

Neal, Derek and Johnson, William. "The Role of Premarket Factors in Black-White Wage Difference", Journal of Political Economy, October, 1996.

Office of the Secretary. "Factors Driving High and Low Skilled Workers' Wages Farther Apart". Washington, D.C.: U.S. Department of Labor.

Reed, Deborah, and Cheng, Jennifer. "Racial and Ethnic Wage Gaps in the California Labor Market." Public Policy Institute of California. 2003.

Spalter-Roth, Roberta, and Lowenthal, Terri Ann. "Race, Ethnicity, and the American Labor Market: What's at Work", American Sociological Association, ASA Series on How Race and Ethnicity Matter, June 2005.

Stettner, Andrew, and Wenger, Jeffrey. "The Broad Reach of Long-Term Unemployment", Economic Policy Institute, 15 May 2003.

Thomas, Scott. "Post Baccalaureate Wage Growth within Four Years of Graduation: The Effects of College Quality and College Major". School of Industrial and Labor Relations, Cornell University." January 2000.

U.S. Census Bureau. "Bachelor's Degree Field of Advanced Degree Recipients by Sex, Race and Hispanic Origin, and Age." Survey of Income and Program Participation.

U.S. Census Bureau. "School Enrollment of the Population 3 Years Old and Over, by Level and Control of School, Race, and Hispanic Origin: October 1955 to 2004".

Return to the Employment Standards Service home page
Return to the Division of Labor and Industry home page

Questions or comments about the Employment Standards Service may be directed to ess@dllr.state.md.us.
Questions or comments regarding the Division of Labor and Industry may be directed to dli@dllr.state.md.us.
Questions or comments regarding the DLLR website may be directed to webmaster@dllr.state.md.us.