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The latest evidence on racial discrimination and wages
I haven't read through this closely, but it seems to be a very important paper:
...we show that, relative to white wages, black wages: (a) vary negatively with a measure of the prejudice of the "marginal" white in a state; (b) vary negatively with the prejudice in the lower tail of the prejudice distribution, but are unaffected by the prejudice of the most prejudiced persons in a state; and (c) vary negatively with the fraction of a state that is black. We show that these results are robust to a variety of extensions, including directly controlling for racial skill quality differences and instrumental variables estimates. We present some initial evidence to show that racial wage gaps are larger the more racially integrated is a state’s workforce, also as Becker's model predicts.
Here is the paper. This version is $5 cheaper.
Posted by Tyler Cowen on December 27, 2007 at 07:35 AM in Data Source | Permalink
Comments
"Here is the paper. This version is $5 cheaper."
Cheaper? I got the entire paper (unless it's more than 47 pages) off the first link for free.
It's very dry and semi-interesting, I’d like to see Caplan’s take (I took labor relations with him)
Here is a summary if you want to save some time. (I didn’t read the entire thing)
The study was done to tests Becker’s prejudice model which states that the wages of the discriminated group will be set by the least prejudice employers and that because of this discrimination cannot last in the long run for a competitive market.
They found that that black wages are set by the least prejudice employers. They also found that as the black percentage of the population increased so did the effect of discrimination. This supports Becker’s model.
They list some areas of weakness, one being non measurable/observable skill differences, another being school quality (not quantity) differences. They say these might be seen by controlling for black-white test score gaps.
Not controlling for standardized test scores seems like a very basic thing to miss in such a study.
Posted by: Mason at Dec 27, 2007 10:47:02 AM
...including directly controlling for racial skill quality differences
Waitaminute, controlling for skill differences already closes 96% of the B-W wage gap. Are we talking about the other 4%?
Posted by: Jason Malloy at Dec 27, 2007 12:16:51 PM
Not controlling for standardized test scores seems like a very basic thing to miss in such a study.
Oh thanks, Mason. They didn't take this into account. Yep, this study appears worthless. When you match by IQ the wage gap disappears.
Posted by: Jason Malloy at Dec 27, 2007 12:25:29 PM
We conclude that the commonly accepted idea that prejudice-based discrimination cannot survive in competitive markets is not theoretically true
Commonly accepted? Maybe by academics who never leave campus to take a look around.
Posted by: Bernard Yomtov at Dec 27, 2007 12:29:51 PM
So sayeth Yomtov, sanctimonious liberal of the day.
Posted by: Billare at Dec 27, 2007 12:43:39 PM
So sayeth Yomtov, sanctimonious liberal of the day.
Sorry to offend you. Do you have anything useful to say?
I have always thought this particular idea was out of touch with reality. There's a very long history of employment discrimination in this country, and the notion that market forces must make it disappear strikes me as the worst kind of ivory tower thinking. If the theory does not explain the history, then it's not a very good theory. (Now, the phrase "long-term" covers a lot of ground, but let's not fall back on that.)
I think part of this is a misunderstanding of racism, which leads people to confuse skills and diligence with productivity. I think part of it is just an attempt to shoehorn the whole discrimination problem into some sort of preconceived theory of how society ought to work without asking whether it holds.
Regardless of whether you agree with me on all this, I very much doubt that it is "commonly accepted" that "prejudice-based discrimination cannot survive in competitive markets."
Posted by: Bernard Yomtov at Dec 27, 2007 1:27:30 PM
"controlling for skill differences already closes 96% of the B-W wage gap"
If this is the case, then the regional and state differences in the relative wage implies differences in the educational opportunities offered by states to black students vs white students. That is that states showing a higher level of prejudice have a black population with lower skill levels relative to the non-black population in the state.
Posted by: joan at Dec 27, 2007 1:30:07 PM
Jason, are you agreeing or disagreeing with me that they didn’t control for performance on standardized tests?
And I may have been mistaken; table 4 is titled, Controlling for test score difference between states.
and then there’s;
controls for the state-level racial difference in mean National Assessment of Educational Progress–Long Term Trend (NAEP-LTT) math and reading scores.
and;
In Table 5, we use another indicator of latent skill differences by race. In their paper on relative
school quality, Card and Krueger (1992) collect information on the student/teacher ratios for
various cohorts of students in 18 southern states.
I thought they didn’t control of test score because – A second possibility is that unobserved racial skill differences, as might be measured by the black-white test score gap, could be correlated with prejudice.
a search of the paper for IQ brings up nothing. Plus why are they controlling for school quality if they’re already controlling for scores on standard, surely the schools quality would be reflected in the test scores.
I’m sure actually reading the paper would make this less confusing, but like I said before it’s very dry.
Posted by: Mason at Dec 27, 2007 1:34:43 PM
If prejudice is commonplace in society, it will be commonplace in government as well. Allowing government to enact racist policies in any form is a huge mistake for this reason, IMO. Markets cannot correct for a flawed culture, at least not overnight.
Anyway, most of the prejudice against blacks in America that I've seen is cultural. Many blacks have a different culture and a different accent than whites. Humans are naturally drawn to people they have things in common with, and I don't think markets, governments, or anything else is going to remove this tendency any time soon.
People just tend to want to hang out with others like them, but that doesn't make them evil racists for doing so.
Posted by: G at Dec 27, 2007 3:14:57 PM
Jason, are you agreeing or disagreeing with me that they didn’t control for performance on standardized tests?
Neither, I was thanking you for the information since I hadn't read the paper. I have found a free version here (PDF). It's a pretty simple paper, comparing the level of prejudice across just 9 US regions with the relative wage gaps in those regions. It's such a weak method, I doubt you can take any reliable conclusions from it.
A second possibility is that unobserved racial skill differences, as might be measured by the black-white test score gap, could be correlated with prejudice.
The authors very well could have controlled for IQ, since they used the General Social Survey, which includes an IQ test (the second paper I linked above uses the General Social Survey to show the wage gap disappears when you control for IQ. The first uses the NLSY.)
From state by state datasets I know IQ gaps don't follow common knowledge about prejudice. Test score gaps seem to be narrowest in many Southern states, and widest in 'egalitarian' Northern states like Minnesota and Wisconsin.
Using the GSS and the prejudice numbers for "the marginal white" calculated by the authors for the 9 regions (Table 2, page 38), the correlation between the size of the B-W IQ gap and regional prejudice is -0.22.
So the gap is somewhat smaller in more prejudiced US regions. (mainly because white scores go down easier than the black scores go up. Black and white scores correlate across states and regions, but the higher the state or regional white IQ, the further blacks seem to fall behind.
If this is the case, then the regional and state differences in the relative wage implies differences in the educational opportunities offered by states to black students vs white students.
If IQ was a proxy for 'educational opportunities', then simply correlating those opportunities with wages directly would lead to stronger associations. But the associations are weaker. For instance, controlling for years education leaves a big wage gap, while controlling for IQ closes it.
Most IQ differences are within families, and by about the same amount for blacks and whites. There are good empirical reasons to doubt external prejudice has much to do with black test scores at all.
Posted by: Jason Malloy at Dec 27, 2007 5:28:45 PM
Just as the black-white IQ gap tends to be smaller in the South than in the fairly liberal North-Central, the black-white imprisonment ratio gap is smaller in the South, and highest in liberal areas like Washington DC (where blacks are imprisoned at a rate 56 times higher than whites).
The next biggest gap was 31 to 1 in Minnesota, which has normally been quite a bit more liberal than the typical heartland state.
Overall, the two regions with the biggest racial differences in black-white imprisonment rates are the Old Northwest and the Mid-Atlantic.
The black-white ratio in imprisonment rates in the South runs at only about 6 to 1, below the national average.
States with relatively high black vs. white imprisonment rates tended to vote for Kerry—the correlation was a strong r = 0.62
Obviously, the discrimination explanation for the racial gap in imprisonment does not hold water.
Posted by: Steve Sailer at Dec 28, 2007 12:59:53 AM
If you are interested in a case study of how well Gary Becker's theory of discrimination applies to the most closely studied industry in the world -- professional baseball -- here's my 1996 National Review cover story "How Jackie Robinson Desegregated America:"
http://www.isteve.com/JackieRobinson.htm
Posted by: Steve Sailer at Dec 28, 2007 1:03:34 AM
J Malloy:
Discrimination lowers IQ by preventing access to cognitively enhancing environments, so controlling for IQ controls a great deal for discrimination.
Posted by: ben g at Dec 28, 2007 3:14:58 AM
"Discrimination lowers IQ by preventing access to cognitively enhancing environments, so controlling for IQ controls a great deal for discrimination."
1) That hypothesis seems to beg the question.
2) If discrimination had a significant effect, we would expect some significant residual effect after controlling for IQ even if IQ differences were entirely the product of discrimination. Surely, if discrimination has power, its power does not mysteriously stop once IQ is formed.
Posted by: Constant at Dec 28, 2007 3:56:05 AM
"racial wage gaps are larger the more racially integrated is a state’s workforce"
So, to accept this while thinking racism is the cause of wage gaps, one would have to believe that racists readily hire those oppressed minorities, they just pay them less due to their racism. Possible, but I think unlikely.
I wish that in public we could have a real discussion of what really constitutes racism. Economists come closest to having such a discussion.
It seems I feel the way about discrimination the way Bernard feels about liberty being lacking in the US.
I also imagine that from the perspective an an insular minority, it would be easy to draw the conclusion that others must be getting all these benefits. But from a lone white individual, I sure don't feel like I'm getting help from anyone. In fact, with the soft affirmative action of diversity programs, I'd have to conclude the opposite.
By the way, at the place I used to work, I never heard talk of any racial tensions until they instituted their aggressive diversity programs and rhetoric. I think one problme with this rhetoric is it emphasizes a false competition for falsely scarcified resources; accolades, promotions, etc. And real competition for really scarce resources (raises, bonuses, etc.) based on group identity and bureaucracy rather than race-blind individual merit.
Posted by: Andrew at Dec 28, 2007 11:18:25 AM
Another thought on modern "racism." I think it really could be a marginal phenomena.
By that, I mean that a very small, subconcious amount of racism at the margin can have a big effect on an individual.
The way a majority of companies do their evaluations works like this. In a group of say 10 people (to keep the numbers easy) they will have one or two top slots, 5 or 6 average and one or two bottom-tier performers.
They are forced to shoe-horn people into a bell-curve by company policy and the manager negotiation process.
After individual managers get a rough idea for themselves about where people will end up, they then often have to get into a room of other managers and fight for their top slot people. Due to limited resources for raises, top slots are scarcified. So, a strategic manager will select the people for the top slots that they know they can get through. So, a manager doesn't even have to be racist. Their fellow managers don't have to be racist. They just have to assume that, all other things being equal they will have a slightly easier time on the margin getting a conformist employee a top-performer slot as opposed to a racial minority.
Now, I can buy this without accepting that the solution is to have diversity or affirmative action programs that send the message to a marginally top-performer like myself that there is not much point in working marginally harder because I will not be able to be top 5% or 10%. There are opportunity costs for every proposed solution. So, I think the only real solution is to address the real problem. Racism in the "hearts" of individuals. This is best done over time as voluntary economic ties cause people to realize that we are more similar than different. Involuntary ecomonic ties may be runner-up, but I think they breed resentment.
Posted by: Andrew at Dec 28, 2007 11:35:57 AM
Couple thoughts:
The statement: If prejudice is commonplace in society, it will be commonplace in government as well.
Carries a lot of weight in G's argument without any evidence. Are governments really that congruent with the governed? Just asking.
Surely, if discrimination has power, its power does not mysteriously stop once IQ is formed.
Can we think of any models wherein this does not hold? For example that professional employers are less racist than schoolteachers? Or at least face different incentives? This is a great libertarian argument - publicly-employed teachers could be more insulated than employers from the costs of tacit discrimination.
Humans are naturally drawn to people they have things in common with, and I don't think markets, governments, or anything else is going to remove this tendency any time soon.
What if you put people of different races in the same place? It may not take them that long to realize that they are 98% the same and that "accent" isn't a useful way to measure a man. Especially if they're children. Desegregating public schools would in that case be an example of a government action that, while not any sort of silver bullet, may help.
By that, I mean that a very small, subconcious amount of racism at the margin can have a big effect on an individual.
Andrew's argument (different Andrew) sounds very right to me.
Posted by: Andrew Edwards at Dec 28, 2007 11:56:40 PM
If you are interested in a case study of how well Gary Becker's theory of discrimination applies to the most closely studied industry in the world -- professional baseball -- here's my 1996 National Review cover story "How Jackie Robinson Desegregated America:"
I read it. In my opinion the history of racism in baseball, and other sports, is evidence against Becker's theory, not for it. Start with the fact that it took fifty years for the game to integrate at all, and another 15 years or so for there to be large numbers of black major leaguers. That's a long enough time that it raises serious questions as to how valid this theory is. And a big part of the process was due to changes in social attitudes by the late 40's, at least in some parts of the country. (Can you imagine a manager publicly making Durocher's statement in the 20's?)
You don't address why the owners wanted to exclude blacks. If it was to cater to the players' racism, as you imply, then that precisely shows the flaw in the theory. The racism of white teammates would make it hard for black players to perform to full potential - they would be "unproductive" through no fault of their own. If it was to cater to the racism of fans, which seems likely as an additional reason, the same argument applies.
Finally, the point about the "cartel" is murky. Cartels usually are aimed at giving the members economic benefits. They act as a sort of group monopoly to obtain monopoly power. Cartels are notoriously hard to hold together. But here there was no economic advantage to be gained by a group decision excluding blacks. No owner who wanted to sign black players had anything to gain by not doing so. That is, unless prevailing attitudes made signing black players economically unwise, as it surely did.
And that is the point. In a racist society competitive forces do not eliminate race-based discrimination. They may in fact encourage it.
Posted by: Bernard Yomtov at Dec 29, 2007 10:05:11 AM
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