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Racial Labor Market Gaps: The Role of Abilities and Schooling Choices

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  • Sergio Urzúa

Abstract

This paper studies the relationship between abilities, schooling choices, and black-white differentials in labor market outcomes. The analysis is based on a model of endogenous schooling choices. Agents’ schooling decisions are based on expected future earnings, family background, and unobserved abilities. Earnings are also determined by unobserved abilities. The analysis distinguishes unobserved abilities from observed test scores. The model is implemented using data from the NLSY79. The results indicate that, even after controlling for abilities, there exist significant racial labor market gaps. They also suggest that the standard practice of equating observed test scores may overcompensate for differentials in ability.

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  • Sergio Urzúa, 2008. "Racial Labor Market Gaps: The Role of Abilities and Schooling Choices," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
    • Handle: RePEc:uwp:jhriss:v:43:y:2008:i4:p919-971
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    1. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
    2. Carneiro, Pedro & Heckman, James J & Masterov, Dimitriy V, 2005. "Labor Market Discrimination and Racial Differences in Premarket Factors," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 1-39, April.
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    5. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "2001 Lawrence R. Klein Lecture Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 361-422, May.
    6. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
    7. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    8. Keane, Michael P & Wolpin, Kenneth I, 2000. "Eliminating Race Differences in School Attainment and Labor Market Success," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 614-652, October.
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    Cited by:

    1. Michael J. Kottelenberg & Steven F. Lehrer, 2019. "How Skills and Parental Valuation of Education Influence Human Capital Acquisition and Early Labor Market Return to Human Capital in Canada," Journal of Labor Economics, University of Chicago Press, vol. 37(S2), pages 735-778.
    2. Thiel, Hendrik & Thomsen, Stephan L., 2013. "Noncognitive skills in economics: Models, measurement, and empirical evidence," Research in Economics, Elsevier, vol. 67(2), pages 189-214.
    3. Heckman, James J. & Urzúa, Sergio, 2010. "Comparing IV with structural models: What simple IV can and cannot identify," Journal of Econometrics, Elsevier, vol. 156(1), pages 27-37, May.
    4. Lex Borghans & Bas Ter Weel & Bruce A. Weinberg, 2014. "People Skills and the Labor-Market Outcomes of Underrepresented Groups," ILR Review, Cornell University, ILR School, vol. 67(2), pages 287-334, April.
    5. Jiang, Xuan, 2018. "Planting the Seeds for Success: Why Women in STEM Do Not Stick in the Field," MPRA Paper 89650, University Library of Munich, Germany.
    6. Sergio Urzua, 2019. "Redistribution Through Education: The Value of Public Education Spending," Commitment to Equity (CEQ) Working Paper Series 88, Tulane University, Department of Economics.
    7. Papageorge, Nicholas & Ronda, Victor & Zheng, Yu, 2014. "The Economic Value of Breaking Bad: Misbehavior, Schooling and the Labor Market," Economics Working Paper Archive 64574, The Johns Hopkins University,Department of Economics, revised 16 Jun 2020.
    8. Judith K. Hellerstein & David Neumark, 2011. "Employment in Black Urban Labor Markets: Problems and Solutions," NBER Working Papers 16986, National Bureau of Economic Research, Inc.
    9. Christopher Rauh & Aranu Valladares-Esteban, 2023. "On the black-white gaps in labor supply and earnings over the lifecycle in the US," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 424-449, December.
    10. Jonathan Fisher & Christina Houseworth, 2012. "The reverse wage gap among educated White and Black women," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 449-470, December.
    11. Jorge Rodríguez & Fernando Saltiel & Sergio Urzúa, 2022. "Dynamic treatment effects of job training," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 242-269, March.
    12. Laura Turner & Aloysius Siow & Gueorgui Kambourov, 2014. "Relationship Skills in the Labor and Marriage Markets," 2014 Meeting Papers 155, Society for Economic Dynamics.
    13. Gregory Veramendi & Sergio Urzua, 2011. "The Impact of Out-of-Home Childcare Centers on Early Childhood Development," Research Department Publications 4723, Inter-American Development Bank, Research Department.
    14. Loreto Reyes & Jorge Rodríguez & Sergio S. Urzúa, 2013. "Heterogeneous Economic Returns to Postsecondary Degrees: Evidence from Chile," NBER Working Papers 18817, National Bureau of Economic Research, Inc.
    15. María F. Prada & Sergio S. Urzúa, 2014. "One Size does not Fit All: Multiple Dimensions of Ability, College Attendance and Wages," NBER Working Papers 20752, National Bureau of Economic Research, Inc.
    16. Lex Borghans & Bas Ter Weel & Bruce A. Weinberg, 2014. "People Skills and the Labor-Market Outcomes of Underrepresented Groups," ILR Review, Cornell University, ILR School, vol. 67(2), pages 287-334, April.
    17. Fernando Saltiel, 2019. "What's Math Got to Do With It? Multidimensional Ability and the Gender Gap in STEM," 2019 Meeting Papers 1201, Society for Economic Dynamics.
    18. Dionissi Aliprantis, 2017. "Human capital in the inner city," Empirical Economics, Springer, vol. 53(3), pages 1125-1169, November.
    19. Jiang, Xuan, 2021. "Women in STEM: Ability, preference, and value," Labour Economics, Elsevier, vol. 70(C).
    20. James J. Heckman & John Eric Humphries & Sergio Urzua & Gregory Veramendi, 2010. "The effects of educational choices on labor market, health, and social outcomes," Working Papers 2011-002, Human Capital and Economic Opportunity Working Group.
    21. Tinh Doan & Lyndall Strazdins & Liana Leach, 2020. "Cost of poor health to the labour market returns to education in Australia: another pathway for socio-economic inequality," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(4), pages 635-648, June.
    22. Wayne A. Grove & Andrew Hussey & Michael Jetter, 2011. "The Gender Pay Gap Beyond Human Capital: Heterogeneity in Noncognitive Skills and in Labor Market Tastes," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 827-874.

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