Labor Market Dropouts and Trends in the Wages of Black and White Men

Abstract

There is continuing debate over whether and to what degree estimations of black-white wage convergence are biased because they leave labor market dropouts out of the picture. If a high proportion of blacks become discouraged and cease searching for jobs, and if those dropouts have, on average, poor job prospects, the average wage of black workers who remain in the labor market will be an upwardly biased estimate of the average wage across the population. This paper introduces a simple method of imputing wages to non-workers. When non-workers are accounted for in the calculations, real wage growth for prime age black men over the 1969–98 period is reduced approximately 40%, and black-white wage convergence is reduced by approximately one-third. The author finds that a source of bias as important as falling employment rates is the growing gap between wages of workers and potential wages of non-workers.