Rural Wages and Returns to Education: Differences Between Whites, Blacks, and American Indians

Workers in rural areas earn lower wages than nonrural workers and previous evidence has attributed these differences to lower returns to worker characteristics. This paper builds on that data by examining racial and gender differences within the broader group of rural workers. While there is extensive evidence on both the structure of wages and the source of racial wage differentials between Whites and Blacks, there is no such evidence for those in either group living in rural areas. Nor is there much evidence in this literature for American Indians. This paper's contribution to the literature is two-fold. First, it broadens the existing evidence regarding rural workers by focusing on racial and gender differences. Second, it provides new evidence of the structure of wages faced by American Indians, a group typically ignored in empirical research due to data problems. The results reveal that only 14 percent of the 24 percent total wage difference between Whites and American Indians for males are unexplained by observable personal and job characteristics, but 66 percent of the 11 percent wage difference remains unexplained for females. Comparing Whites and Blacks, 44 percent of the 31 percent wage difference is unexplained for males, while 97 percent of the 15 percent wage difference is unexplained for females. With the rural focus, Whites are more similar to American Indians, both experiencing very small wage returns to education. However, in both samples, Blacks suffer disproportionately severe penalties for low educational attainment. For all three races, females enjoy much higher returns to education than males.