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Racial Discrimination and Competition

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Author Info
Ross Levine
Alexey Levkov
Yona Rubinstein

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Abstract

This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced financial market imperfections and lowered entry barriers facing nonfinancial firms. We use bank deregulation to identify an exogenous intensification of competition in the nonfinancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white wage differential unexplained by Mincerian characteristics. We find that bank deregulation reduced the racial wage gap by spurring the entry of nonfinancial firms. Consistent with theory, the impact of competition on the wage gap is particularly large in states with a comparatively high degree of racial bias, where competition-enhancing bank deregulation eliminated between 20 and 30 percent of the racial wage gap.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14273.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14273

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Find related papers by JEL classification:
D3 - Microeconomics - - Distribution
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J7 - Labor and Demographic Economics - - Labor Discrimination

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References listed on IDEAS
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    Other versions:
  2. William Kerr & Ramana Nanda, 2006. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship," Working Papers 07-033, Harvard Business School, revised Oct 2008. [Downloadable!]
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  6. Huang, Rocco R., 2008. "Evaluating the real effect of bank branching deregulation: Comparing contiguous counties across US state borders," Journal of Financial Economics, Elsevier, vol. 87(3), pages 678-705, March. [Downloadable!] (restricted)
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  23. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law & Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
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  25. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
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  28. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Demirguc-Kunt, Asli & Levine, Ross, 2008. "Finance and economic opportunity," Policy Research Working Paper Series 4468, The World Bank. [Downloadable!]
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