Wage Gap Analysis in Context of Aggregate Labor Market Influences

Abstract

The aim of this paper is to find underlying labor market trends and structures in the black/white wage gap in U.S. metropolitan areas (MSA). Contrary to the predictions of the traditional human capital model, this paper hypothesizes that the unexplained racial wage gap can be attributed in part to structural traits of the individual labor market, rather than discrimination per say. This study finds that access to social networks and in particular faith-based associations can improve the black/white wage differential. The effects of racial segregation in the MSA's labor market are two-fold: Generally speaking, racial segregation will increase earnings disparities. Secondly, the existence of a secondary, minority-dominated labor market within an ethnic enclave may act as a buffer, decreasing the racial wage gap through minority-owned businesses paying non-discriminatory wages. The study also found that differences in the quality of education and disparities in racial unemployment seemed to contribute little to the racial wage gap.