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The Role of Premarket Factors in Black-White Wage Differences

Derek A. Neal and William R. Johnson
Journal of Political Economy
Vol. 104, No. 5 (Oct., 1996), pp. 869-895
Stable URL: http://www.jstor.org/stable/2138945
Page Count: 27
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The Role of Premarket Factors in Black-White Wage Differences
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Abstract

Many attempts to measure the wage effects of current labor market discrimination against minorities include controls for worker productivity that (1) could themselves be affected by market discrimination and (2) are very imprecise measures of worker skill. The resulting estimates of residual wage gaps may be biased. Our approach is a parsimoniously specified wage equation that controls for skill with the score of a test administered as teenagers prepared to leave high school and embark on work careers or postsecondary education. Independent evidence shows that this test score is a racially unbiased measure of the skills and abilities these teenagers were about to bring to the labor market. We find that this one test score explains all of the black-white wage gap for young women and much of the gap for young men. For today's young adults, the black-white wage gap primarily reflects a skill gap, which in turn we can trace, at least in part, to observable differences in the family backgrounds.

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