Male White-Black Wage Gaps, 1979-1994: A Distributional Analysis

Abstract

1. IntroductionNumerous studies show that during the 1980s the mean white-black wage gap among new entrant (0-10 years of potential experience) males expanded.1 Juhn, Murphy, and Pierce (1991; JMP) attribute the mean gap's expansion to a widening of the overall U.S. wage distribution caused by a host of economy-wide race-neutral changes that led to labor demand shifts toward better-educated and better-skilled workers regardless of race. Because African Americans tend to be at lower levels of the overall skill distribution, the shifts adversely impacted African American men more than white men, leading to an expansion in the mean wage gap.To arrive at this conclusion, JMP decompose the expansion in the mean new entrant wage gap into four components. The first two components measure the wage gap's increase because of a widening in observable racial differences in measured characteristics and their prices--for example, educational attainment and the returns to education. The third component captures the contribution of growing racial discrimination and widening differences in unmeasured skills to the wage gap's expansion. This term's contribution is measured by the drop in the mean percentile rank of blacks in the white residual wage distribution. The fourth component identifies the role of increases in the prices of unmeasured skills and is measured by the increase in the variance of the white residual wage distribution.When applied to the March Annual Demographic files of the Current Population Survey, JMP find that from 1979 to 1987 increases in the price of unmeasured skills explain all of the new entrant mean wage gap's expansion, indicating that factors that adversely impacted less-skilled workers regardless of race are the primary cause of the wage gap's expansion.In related work, Reardon (1997) uses a national sample of white and African American men from the 1980 and 1990 decennial censuses and shows that the mean racial wage gap's expansion is caused by increased variance in the distribution of residual wages, generated by labor demand shifts toward high-skilled whites and away from medium-skilled whites and high-skilled African American men. The wage gap expands because high-skilled African American men earn wages that are similar to those of whites in the middle and upper third of their wage distribution. The labor demand shifts led to a stretching or increased variance in the wage distribution that favored high-skilled whites relative to high-skilled African Americans and medium-skilled whites.This paper makes several contributions to the literature on racial wage gaps and the technical literature on wage decompositions. First, I examine whether JMP's (1991) results hold up when the analysis is disaggregated by experience and educational attainment. This is an important extension for two reasons. Bound and Freeman (1992), Rodgers (1997a), and others have found that the racial wage gap among high school graduates, and particularly among college graduates, expanded significantly after the late 1970s. Over the same time period, the variance of wages within these educational categories increased. Second, it is important to determine the extent to which racial inequality that was generated while a cohort was a new entrant persists as it ages.The paper's technical innovation is the development of a distribution or skill-specific decomposition that identifies whether the stretching of the white wage distribution uniformly contributes to an expansion in racial inequality at all skill levels or quantiles of the wage distribution, or whether the contribution of the wage distribution's stretching is specific to a skill level. For example, does the increase in the price of unmeasured skills explain a greater portion of the increase in the racial wage gap between high-skilled African Americans and whites than it does between medium-skilled African Americans and whites? …