Sources of Black-White Earnings Differences

Eric A. Hanushek
Published Date
June 1982
Social Science Research
pp. 103-126

The panoply of possible factors contributing to the observed earnings differences between blacks and whites exceeds current analytical abilities. Thus, this paper concentrates on a limited range of factors: skill differences among workers, geographic location (or labor market), and race. Skill differences are measured by schooling and experience levels. The analysis allows for interactions with specific labor markets instead of averaging across different labor markets and uses data from the Public Use Samples of the 1970 census to estimate the three factors being examined. The study indicates that differences in regional geographic location of black and white workers have a rather modest effect on aggregate earnings differences. Differences in schooling and experience, when isolated, could account for 11 to 14 percent of the earnings gap between races. However, if schooling and experience levels are held constant, 90 percent of the earnings gap would be closed if the groups were equally rewarded for their skills. Because of limited information about skill differences among workers, it is not possible to conclude that the earnings differences are caused solely by discrimination. A substantial portion of the measured differences could be explained by qualitative differences in schooling and experience.