The Role of Location in Evaluating Racial Wage Disparity

Federal Reserve Bank of St. Louis Research Division Working Paper 2009-043B

34 Pages Posted: 6 Sep 2009 Last revised: 19 Jul 2010

See all articles by Dan Black

Dan Black

University of Chicago - Harris School of Public Policy

Natalia Kolesnikova

Federal Reserve Bank of St. Louis

Seth G. Sanders

University of Maryland - Department of Economics

Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: July 16, 2010

Abstract

A standard object of empirical analysis in labor economics is a modified Mincer wage function in which an individual's log wage is specified to be a function of education, experience, and an indicator variable identifying race. We analyze this approach in a context in which individuals live and work in different locations (and thus face different housing prices and wages). Our model provides a justification for the traditional approach, but with the important caveat that the regression should include location-specified effects. Empirical analyses of men in U.S. labor markets demonstrate that failure to condition on location causes us to (i) overstate the decline in black-white wage disparity over the past 60 years, and (ii) understate racial and ethnic wage gaps that remain after taking into account measured cognitive skill differences that emerge when workers are young.

Keywords: wage regressions, racial wage disparity, theory of local labor markets

JEL Classification: J31, J71, R23

Suggested Citation

Black, Dan and Kolesnikova, Natalia and Sanders, Seth G. and Taylor, Lowell J., The Role of Location in Evaluating Racial Wage Disparity (July 16, 2010). Federal Reserve Bank of St. Louis Research Division Working Paper 2009-043B. Available at SSRN: https://ssrn.com/abstract=1468435 or http://dx.doi.org/10.2139/ssrn.1468435

Dan Black

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Natalia Kolesnikova (Contact Author)

Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Seth G. Sanders

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States
412-268-3278 (Phone)
412-268-7036 (Fax)

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