Working for Cents on the Dollar

Abstract

This paper uses data from the 2007 Survey of Employers in the Low-Skill Labor Market to analyze whether wage differences among workers of different races and ethnicities in the low-skill labor market remain after controlling for individual, job, and employer characteristics. The employer-provided data include detailed information on job requirements and employer characteristics rarely available in household surveys. We find that black workers earn significantly less than white workers in the less-skilled labor market, and a significant difference (12 percent) remains even after controlling for worker, job, and employer characteristics.

Introduction

While the wages earned by whites and nonwhites in the United States have become closer over the past quarter-century, a gap persists. In 2005, the median hourly wage of black men was $12.48, compared with $17.42 for white men (Mishel, Bernstein, and Allegretto 2007, table 3.24). Racial and ethnic pay gaps have been the subject of much concern and analysis. According to past research, differences in the education, skills, and experiences of white and nonwhite workers along with differences in the industries and types of firms that employ them account for some of this gap (Couch and Daly 2000; Fry and Lowell 2006; Holzer 2001; Welch 2003). Differences in these factors, however, can themselves be the result of discrimination (Maxwell 1994).

Some may consider any residual gap in wages after controlling for observed factors to reflect discrimination in the labor market. Others suggest that unobserved but very real differences in workers and jobs account for the remaining pay gap. The research disagrees over whether such factors as test scores, which may or may not closely reflect ability, can totally explain the difference in race wage differentials (Lang and Manove 2006; Neal and Johnson 1996; O'Neill and O'Neill 2005).

Another avenue to understanding differences in wages across race and ethnicity is to examine the differences in the type of jobs workers hold—what the job requires and what the worker does. Employers who know workers' job skills sort them into different types of jobs; this may account for some of the pay differences between racial and ethnic groups. Assuming that employers sort on merit and the sorting itself does not reflect discrimination, racial and ethnic pay gaps may largely be explained by differences in the jobs held by members of different groups. Because job requirements and job characteristics are often not available in the data researchers commonly use, they have rarely been considered in understanding pay differentials.

This paper uses data from the 2007 Survey of Employers in the Low-Skill Labor Market to analyze whether wage differences among workers of different races and ethnicities in the low-skill labor market remain after controlling for individual, job, and employer characteristics. We focus on the less-skilled labor market because workers in this sector are likely to be new entrants or re-entrants to the labor market or to be struggling to make ends meet. Policymakers are concerned about how to improve these workers' earnings generally, along with specific issues for young black men and immigrant workers. Understanding racial and ethnic wage differences for less-skilled workers and the potential role of discrimination will help address the need for and creation of targeted policies to improve wages for these workers.

Our analysis uses employer-provided data that include detailed information on job requirements and employer characteristics rarely available in household surveys. We first examine the differences in jobs held by workers of different race and ethnicity in the less-skilled labor market. We then analyze whether wage differentials remain after controlling for specific requirements of the job in addition to workers' characteristics. In this analysis, we are also able to take into account employer characteristics, such as size of firm and industry, that are typically correlated with wages (Acs and Loprest 2008). We then assess how much of the disparity in wages across race and ethnic groups can be accounted for by differences in the types of jobs they hold.

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