Abstract
Abstract Using CPS data from 1979–2009 we examine how cyclical downturns and industry-specific demand shocks affect wage differentials between white non-Hispanic men and women, Hispanics and non-Hispanic whites, and African-Americans and non-Hispanic whites. Women’s relative earnings are harmed by negative shocks; the wage disadvantage of African-Americans drops with negative shocks, while the impact on Hispanics’ wages is unclear. A theory of job search suggests two opposite-signed mechanisms that affect these wage differentials. It suggests greater absolute effects among job-movers, which is verified using the longitudinal component of the CPS. Jel codes J7, E3
Highlights
Introduction and history For nearly50 years the measurement of wage differentials between racial and ethnic groups, and between genders, has been a mainstay of empirical labor economics
Measured cyclical movements in ratios of earnings per hour could arise from two distinct mechanisms: changes over the cycle in the characteristics of the workers in each group and changes over the cycle in pure wage discrimination
We show that a standard random search model with employer discrimination implies a cost to employers of indulging discriminatory tastes that varies pro-cyclically, providing a formal version of the argument cited in early work; but the model points to other ways that discriminatory wage differentials will be affected by a changing unemployment-vacancy ratio that work in the opposite direction
Summary
Introduction and history For nearly50 years the measurement of wage differentials between racial and ethnic groups, and between genders, has been a mainstay of empirical labor economics. Adding both state and year fixed effects to the regression reduces the precision in our estimates of the impact of changes in unemployment on discriminatory wage differentials, but alleviates bias caused by correlations between secular changes in the natural rate of unemployment, real wages, and the presence of women and minorities in the labor force.
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