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America Becoming: Racial Trends and Their Consequences: Volume II (2001)

Chapter: 4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term

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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

4
Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term

James P.Smith

Of the many disturbing labor-market trends in recent years, the stagnated wage gap between races may be the most disheartening. Race continues to be America’s most persistent area of social and economic disparity. Many Americans were encouraged by the steady and significant economic progress Blacks made after World War II. The recent stagnation, however, challenges that optimism. In addition, the average economic status of Hispanics appears to be deteriorating at an even more alarming rate than that of Blacks.

This paper describes major, long-term trends that have had an impact on the economic status of Blacks and Hispanics, including long-term trends that appear to be influenced mostly by skill-related factors. Also addressed are alternative explanations for the 1960s-to-1990s stagnation in the economic position of minority households; explanations include changes in schooling, quality of students, affirmative action, and rising wage inequality. In addition, the role of immigration in altering the labor-market position of Hispanic workers is analyzed.

LONG-TERM WAGE TRENDS

Since 1940, the American economy has enjoyed substantial economic growth; inflation-adjusted incomes of all its citizens have risen dramatically. For example, real incomes of White men expanded almost threefold between 1940 and 1990, but this improvement was surpassed by even more rapid earnings growth among Black men, whose real incomes more

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

than quadrupled during the same 50-year period (for detailed comparisons, see Smith and Welch, 1989). Not only did the standard of living of Black men improve as measured against earlier Black generations, it rose relative to their White contemporaries.

Table 4–1 shows comparative increases in the relative economic status of Black and Hispanic men from 1940 to 1990. In 1940, the average Black male worker earned only 43 percent as much as his White counterpart; by 1990, it was 75 percent as much. The pace at which Blacks were able to narrow the wage gap, however, was far from uniform. The largest improvement occurred during the 1940s; during the 1950s, advances slowed considerably; during the 1960s and 1970s, the rise in Black men’s wages was more than 10 percent higher than the rise in White men’s wages; but after 1980, the pace of relative labor-market progress for Blacks slowed considerably.

Although the improvement in the relative economic status of Blacks from 1940 to 1990 was impressive, by 1990 incomes of Black males were still significantly lower than those of White males. The description of the last half century’s racial income differences has two messages: (1) considerable progress has been made in eradicating the wage gap between the races; (2) but progress has not eliminated race as an important predictor of an individual’s income.

Table 4–1 also shows a remarkably constant wage gap for Hispanics from 1940 to 1990. In 1990, Hispanics earned 67 percent as much as U.S.-born White men, only slightly higher than the Hispanic-White wage gap of 1940. This aggregate stability, however, hides important changes over time. For example, from 1970 to 1990, there was a steady deterioration in the relative economic status of Hispanic men, as their wages decreased by 16 percent compared to White men.

The lack of Hispanic economic progress is most apparent when com-

TABLE 4–1 Minority Male Wages as a Percent of White Male Wages

Minority Group

1940

1950

1960

1970

1980

1990

Blacks

43.3

55.2

57.5

64.4

72.6

74.5

All Hispanics

64.2

73.8

70.2

73.7

70.7

67.3

Mexicans

55.6

71.3

70.0

70.1

68.0

63.0

Puerto Ricans

82.9

71.5

61.3

66.7

66.1

74.5

Cubans

n.a.

n.a.

n.a.

75.6

82.8

86.6

Other Hispanics

82.1

85.4

82.3

82.7

77.6

71.9

Blacks as a percent of Hispanics

67.4

74.8

81.9

87.4

1.03

1.07

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

pared to Blacks. In 1940, the average Black male worker earned two-thirds as much as the average Hispanic male worker, but in 1990, Black men earned approximately 7 percent more than Hispanic men, on average. One tale of these two minorities is the significant progress achieved by Black men over the last half century. No such story of progress is possible for Hispanics, who seem over the long term to have stagnated and, in recent years, to have deterioriated. This sharp contrast between Hispanics and Blacks suggests that, for Hispanics, forces related to immigration, such as immigration status and English language proficiency, may have played a central role.

Although often viewed as an aggregate, there has always been considerable economic heterogeneity within the Hispanic population. Among the major Hispanic subgroups, Mexicans have always fared the worst economically. In 1940, when the other Hispanic ethnic groups were being paid more than 80 percent of wages paid to U.S.-born White men, Mexican men were earning only 56 percent. By 1950, however, Mexicans were earning 71 percent of what White men earned, a ratio that stayed constant for the next 20 years. After 1970, however, Mexican relative wages declined steadily, expanding their wage disparity to its highest level in more than 40 years.

THE POOR, THE MIDDLE CLASS, AND THE AFFLUENT

Trends in Economic Status

The distribution of this long-term labor-market progress is addressed in Table 4–2. Building on the simplicity of the poverty line, all workers are divided into three wage classes—poor, middle class, and affluent.1

Coming out of the Depression era in 1940, 31 percent of working White men had jobs that placed them in the ranks of the poor. The

1  

Since the first attempts to measure poverty, debate has continued as to whether poverty is an absolute or relative concept. To determine the percent of the population to be categorized as poor, I used elements of both the absolute and the relative definitions. It turns out that my definition corresponds more closely to most people’s notions of what poverty means. Over time, when asked in surveys about the amount of income required not to be poor, the poverty threshold has increased roughly 50 cents for every $1 increase in real income. Based on that observation, my definition of poverty increases the poverty threshold income by 0.5 percent for every 1 percent growth in real income. For 1979, I selected as the initial criterion an income level such that 11 percent of average White male earnings equaled “poor.” This poverty threshold was then adjusted for any real income growth or contraction relative to that year. My definition of affluent is asymmetric—i.e., to be affluent, one must have an income equal to 1.33 percent of the White median income for that year (Smith and Welch, 1989).

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–2 Income Group Status of Male Workers (percent)

 

1940

1950

1960

1970

1980

1990

White Men

Poor

31

18

13

9

11

12

Middle Class

38

59

63

65

61

60

Affluent

31

23

24

26

28

28

Black Men

Poor

74

44

37

25

20

23

Middle Class

22

51

58

68

67

64

Affluent

4

5

5

7

13

13

Hispanic Men

Poor

57

32

27

17

23

27

Middle Class

34

61

66

75

66

62

Affluent

9

7

7

8

11

11

Mexican Men

Poor

63

37

29

21

24

30

Middle Class

31

57

64

70

65

60

Affluent

6

6

7

9

11

10

Puerto Rican Men

Poor

33

23

27

15

21

18

Middle Class

49

71

70

80

70

69

Affluent

18

6

3

5

9

13

Other Hispanics

Poor

45

19

18

13

21

24

Middle Class

40

68

70

73

64

63

Affluent

15

13

12

14

15

13

situation for Blacks and Hispanics was far worse. In 1940, the overwhelming majority of Blacks were poor; three-quarters were destitute, with little hope that their lot or even that of their children would improve. The Black middle class then comprised only one-fifth of all Blacks. On the other extreme, the econmic elite resembled an exclusive White club. Similarly, more than one-half of all Hispanic men in 1940 worked in jobs that confined them and their families within the ranks of the poor; only one in three earned middle-class wages; and the Hispanic affluent comprised one-eleventh of that population. Among Hispanics, Mexicans fared the worst; almost two-thirds of working Mexican men earned wages below the poverty threshold.

The subsequent changes have been dramatic. Driven by economic growth and improvements in the skills of the workforce, poverty rates

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

declined rapidly for the White male majority. Between 1940 and 1970, median White wages grew by 3.2 percent per year, a growth that was fairly uniform across the wage distribution. By 1970, only one in every 11 White male workers earned wages below the poverty threshold, and almost two-thirds earned middle-class incomes. Unfortunately, this historic trend reversed during the 1970s and 1980s. The stagnant economic conditions of those decades, combined with expanding wage inequality, led to an increase in both the percentage of White men who were poor and the percentage who were affluent.

The real story of the 1940s–1990s was the emergence of the Black and Hispanic middle class, whose income gains were real and substantial. Unfortunately, as was true for the White majority, these gains in poverty reduction reversed, but at a more rapid rate for Blacks and Hispanics in the 1970s and 1980s. Since 1980, there has been a more than 10 percent increase in the relative numbers of Black and Hispanic working men who were poor. Notwithstanding these downturns, the growth of the Black middle class was so spectacular that in 1990 it outnumbered the Black poor. In 1990, about two-thirds of Blacks and Hispanics had incomes that met the criteria for middle class. In addition, the odds of a Black man penetrating the ranks of the affluent tripled.

Trends in Education

A basic index of the skill workers bring with them to the labor market is the number of years of schooling completed. Because, on average, Blacks and Hispanics complete fewer years of schooling than Whites, education should play a central role in explaining both levels and trends in their wage gaps. It does. Table 4–3 lists mean years of schooling completed for White, Black, and Hispanic males. To highlight differences, education deficits of Blacks and Hispanics, compared to Whites, are also shown.

Not surprising, among all groups, education levels of each new generation increased from 1940 to 1990. Although this secular improvement exists for men of both races, data in Table 4–3 indicate that improvement was much sharper among Black men. Educational differences still persist between Blacks and Whites, but to a lesser extent in 1990 than at any other time in American history. In 1990, the average Black male had completed 1.1 fewer years of schooling than the average White male, representing a steady and continuous decrease from the 3.7-years difference in 1940. Between 1940 and 1990, almost three-quarters of the education gap between Blacks and Whites was eliminated (Smith and Welch, 1989).

The rate of secular improvement in Hispanic schooling by 1990 was slower and more uneven. Although Black men erased three-quarters of

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–3 Education Levels of Males

Year

White

Black

Hispanic

Mexican

Puerto Rican

Cuban

Other Hispanic

A. Average Education Levels of Males

1990

13.30

12.19

10.57

9.97

11.37

12.28

11.45

1980

12.76

11.37

10.18

9.57

10.09

11.72

11.37

1970

11.84

9.82

9.52

8.76

8.92

10.75

10.82

1960

10.37

7.54

7.88

7.34

7.77

n.a.

9.94

1950

10.23

6.71

6.61

6.08

7.73

n.a.

8.07

1940

9.48

5.74

5.95

5.34

7.95

n.a.

7.15

B. Education Deficits Compared to White Men

1990

-0-

1.11

2.73

3.33

1.93

1.02

1.85

1980

-0-

1.39

2.58

3.19

2.67

1.04

1.39

1970

-0-

2.02

2.32

3.08

2.92

1.35

1.02

1960

-0-

2.83

2.49

3.03

2.60

n.a.

0.43

1950

-0-

3.52

3.62

4.15

2.50

n.a.

2.16

1940

-0-

3.74

3.53

4.14

1.53

n.a.

2.33

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

their educational disparity with White men, Hispanics were able to eliminate less than one-third of their initial 1940 deficit. In the process, their education ranking was reversed. Hispanics had a 0.2-year lead over Black men in 1940; by 1990, Black men had more than a 1.5-year schooling advantage. The 1990 Hispanic education gap with White men was nearly two and a half times as large as the schooling gap between Blacks and Whites in that year.

To understand reasons for these disparities, it is necessary to distinguish among Hispanic immigrants and U.S.-born Hispanics. Because immigrants tend to have much less schooling than do U.S.-born Hispanics, secular trends in schooling can be quite sensitive to swings in the size of immigration flows. Some insight into the central role of immigration is suggested by the data in Table 4–4 where Hispanic education levels are listed (and their deficits compared with Whites) by U.S. birth or foreign birth and whether they were recent immigrants—i.e., arrived within the past five years.

Data in Table 4–4 indicate that the changing composition of recent immigration and the increasing percentage of immigrants within the Hispanic population are two dominant underlying trends. Given the better educational opportunities available in the United States, compared to those in their home countries, it is not surprising that U.S.-born Hispanic men have more schooling than their foreign-born counterparts; however, the different secular trends for the U.S.-born and foreign-born Hispanics are more surprising. From 1940 to 1990, the education disparity between

TABLE 4–4 Male Hispanic Years of Schooling Completed, by Nativity

 

1990

1980

1970

1960

1950

1940

A. Average Education Levels of Males

All Hispanics

10.57

10.18

9.37

7.88

6.61

5.95

U.S. born

11.98

10.93

9.80

8.18

7.04

6.18

Foreign born

9.36

9.24

9.26

7.17

5.24

5.27

1–5 years in U.S.

8.96

8.36

9.13

8.47

n.a.

8.21

6 or more years in U.S.

9.50

9.56

9.33

6.75

n.a.

5.23

B. Education Deficits Compared to White Men

All Hispanics

2.66

2.49

2.47

2.49

3.62

3.53

U.S. born

1.25

1.74

2.04

2.19

3.19

3.30

Foreign born

3.77

3.43

2.58

3.20

4.99

4.21

1–5 years in U.S.

4.27

4.31

2.71

1.90

n.a.

1.27

6 or more years in U.S.

3.73

3.11

2.51

3.62

n.a.

4.25

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

U.S.-born Hispanics and U.S.-born Whites steadily narrowed. In 1940, U.S.-born White men had a 3.3-year schooling advantage over U.S.-born Hispanic men. By 1990, 60 percent of this deficit had been eliminated, and U.S.-born Hispanics had a deficit of 1.3 years. Similar trends are found for all Hispanic groups, especially for the numerically important Mexican subpopulation.

A far different picture emerges among the foreign-born. Not only are their disparities with White men considerably larger, there is no longer a trend of uniform progress. In particular, from 1970 to 1990, the era of reversal in the aggregate data, the education gap for foreign-born men increased significantly. Indeed, the mean education of foreign-born Hispanic men is little higher now than it was in 1970. Compared to U.S.-born Whites, the education deficit of foreign-born Hispanic workers rose from 2.58 years in 1970 to 3.77 years in 1990.

The force of these changes is most apparent among recent immigrants, who represent a better index of the education of newly arriving immigrants. From 1940 to 1990, there was a steady deterioration in the relative education levels of new Hispanic immigrants. In 1940, compared to U.S.-born White men, new Hispanic immigrants had a deficit of 1.3 years; by 1990, the deficit had risen to 4.3 years. Education deficits of recent immigrants accelerated after 1970.

In sum, the slow rate of Hispanic educational progress largely reflects a changing composition of the Hispanic immigrant workforce. The rising percentage of immigrants in the Hispanic male workforce in recent decades slowed aggregate gains in Hispanic schooling. Increasing numbers of poorly educated Mexicans among Hispanic immigrants also served to lower the mean schooling advances achieved. The aggregate education data for all Hispanics raised an important dilemma best highlighted by comparing limited aggregate Hispanic education gains with the substantial gains achieved by Blacks from 1940 to 1990. If we limit our comparison to Blacks and U.S.-born Hispanics, the dilemma is resolved. Both groups show, in 1990, a substantial narrowing of their education deficits with White men. Hispanics born in the United States seem no less able than Blacks to improve their educational position over time.

RECENT LABOR-MARKET WAGE TRENDS

In a number of important ways, the long-term historical trends begun in 1940 did not continue from the 1960s to the 1990s. In this section, trends in weekly wages by year, race, ethnicity, and gender from the 1960s to 1990 are examined using the yearly March Current Population Surveys (CPS), starting in 1962.

To set an overall context, Figure 4–1 shows yearly trends in mean

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–1 Yearly trends (1962 to 1997) in mean inflation-adjusted weekly wages for (A) males and (B) females.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

inflation-adjusted weekly wages for working Black, Hispanic, and White men and women. Data for White men can serve as an index of what was happening with average wages for all groups. As an approximation, secular trends can be separated into three periods. From 1962 to 1973, real wages grew (1.6 percent per year). Then followed a sharp decline until 1981, when the average real wage of White men fell 14 percent from the 1973 high. This decrease was so steep that real wages in 1981 were only 3 percent higher than in 1962. Fortunately, the years since 1981 were ones of recovery, with real wages of White men in 1996 15 percent higher than at the 1981 trough (1 percent per year growth).

Time-series trends for other groups primarily mimic trends for White men; however, of interest here are those instances of departure from the White male series. These departures are captured in Figure 4–2, which measures yearly wage gaps, as percentages, for Hispanic and Black men and women, relative to White male wages.

Consider, first, working Black men. As was true for White men, real wages among Black men increased from 1962 to 1973, fell from 1973 to 1981, and then gradually rose. Their trends, however, were far from identical. In particular, from 1962 to 1976 the wage gap between Black and White males decreased sharply, from more than 50 percent at the beginning of the period, to about 32 percent at the end. Then, relative progress ceased and actually reversed, as the gap increased to 41 percent by 1986. Given the noise in the data, it is difficult to know with complete confidence what happened since, but a reasonable characterization would be a modest but steady narrowing of the male racial wage gap.

CPS categorization of data based on Hispanic ethnicity began in 1971. Since then, trends in the wage gap among Hispanic men could not be more different. Throughout the 1970s, the Hispanic male wage deficit, using White male data as an index, held steady at about 30 percent. Since the 1980s, however, this wage gap grew, and reached about 45 percent by the mid-1990s. If we examine data for Mexicans alone, the trends are similar, except that the wage gap is about 5 to 8 percent greater than that observed for all Hispanics.

A different pattern again emerges by gender. White female wage gaps expanded from the early 1960s to the mid-1970s—the same years when Black men enjoyed their largest gains. Since the mid-1960s, however, there has been a long, sustained improvement in the wage position of working women. By 1997, the White female wage deficit was about 50 percent, compared to a peak wage deficit of 73 percent in 1973. Black and Hispanic women exhibit their own unique patterns. By far, the largest relative wage gains were made by Black women. The pace of early improvements was staggering. From 1962 through 1973, when real wages among White men increased by 17 percent, real wages of Black women

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–2 Percentage wage deficits, relative to White males, for Black and Hispanic (A) males and (B) females.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

increased by 50 percent. Although the pace of relative improvement slowed thereafter, it continued steadily until the wage gap for Black women reached about 50 percent, compared to initial levels almost twice that great. In contrast to Hispanic men, Hispanic women did experience some wage gains, but they were relatively small and confined to the 1970s. Similar patterns, with a slightly higher wage gap, exist for Mexican women.

As with the longer-term trends since the 1940s, these more recent trends may also be affected by some well-established, labor-market skill correlate such as schooling. Workers’ schooling backgrounds—i.e., where educated and years of schooling completed—changed only gradually as younger, more educated workers replaced less educated workers who retired. Consequently, labor-market conditions among younger workers may be a more sensitive barometer of some of the forces leading to labor-market change. With this in mind, Figures 4–3 and 4–4 plot Black and Hispanic male and female wage gaps, compared with White male wages, based on mean years of schooling completed—exactly 12 years (high school graduates) and 16 years (college graduates). To concentrate on the young, data are shown for workers with 10 or fewer years of labor-market experience.

It is no surprise that male wage gaps are significantly smaller within education groups, which simply speaks to education’s always-powerful role as a wage predictor. This smaller gap also results, in part, from the stratification by years of experience, but is mostly a consequence of education stratification. Although sampling variability plays a more important role after these stratifications are made, one can still characterize some trends with some confidence. Among high school graduates, the male racial wage gap has one sharp V-shaped pattern; a steep fall starting in 1976, reaching a trough in the mid-1980s, followed by a subsequent narrowing of the racial wage gap. Despite these impressive cycles, however, the end points are essentially the same, so that the high school racial wage gap was basically unchanged from 1960 to the mid-1980s.

Racial trends among college graduates are clearer. Starting with a relatively large wage gap in the early 1960s, wages of Black male college graduates increased sharply until parity with White male college graduates had almost been reached by 1973. That near parity would, however, be short lived as the male racial wage gap among college graduates eventually expanded until almost coming full circle by 1994.

An important pattern to note among Hispanic males is that their same-education-level wage deficits with White men (see Figure 4–3B) are considerably smaller than the racial wage deficits of Black males. This is another reflection of the general finding that after one controls for a rather small list of standard variables—schooling, age, and English language

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–3 Percentage wage deficits with comparable White males for (A) Black (1964–1994) and (B) Hispanic (1972–1996) males’ average wages for workers with 10 or fewer years of experience, ed 12=12 years of schooling (high school graduates); ed 16=16 years of schooling (college graduates).

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–4 Percentage wage deficits with comparable White males for (A) Black (1964–1994) and (B) Hispanic (1972–1996) females’ average wages for workers with 10 or fewer years of experience, ed 12=12 years of schooling (high school graduates); ed 16=16 years of schooling (college graduates).

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

ability—there is little left that is unexplained about the wage differences between Hispanics and Whites—a statement that one would clearly hesitate to make about racial disparities. After controlling for schooling and English language ability, there is no discernible trend in the male wage gap among Hispanics. An implication of this relatively small and constant within-schooling wage gap is that identifying the reasons underlying trends in schooling and age may be enough to account for male Hispanic labor-market trends. But schooling and years of work experience do not comprise a sufficient explanation when the subject turns to race.

Figure 4–4 contains the same-education-level trends for younger Black, Hispanic, and White women compared to younger White men. As a reasonable generalization, among all demographic subgroups, wage gaps with younger White men narrowed in both schooling classes. This indicates that relative schooling trends by sex alone will not account for the narrowing of gender wage differences. Unlike race, the major discriminating variable for women is not schooling but, rather, years of labor-force participation, which leads to greater amounts of labor-market experience (Smith and Ward, 1989). Another point to note is that the narrowing of the gender wage gap in comparison to men was generally more pronounced among college graduates. For example, data begin with 1964 showing higher wage gaps among White female college graduates, but by the mid-1990s this ranking had reversed and the gender wage deficit was greatest among White high school graduates.

So far, all wage comparisons shown here have relied on mean wages across demographic groups. A reliance solely on means is always problematic, but never more so than during the 1960s to 1990s. Whatever was happening to differences among these demographic groups, the major labor-market action was actually occurring elsewhere. During these years, the overriding structural adjustment in the labor market was the rapidly expanding increase in wage inequality. This increase was dramatic even among White men, and can be summarized by a simple rule of thumb— the lower the initial wage or skill, the smaller the subsequent wage growth that took place. Combined with the fact that median wages were relatively flat during most of this period, the end result was that workers earning less than the median wage experienced real-wage losses, and those earning more than the median wage had real-wage gains. Although this structural adjustment was, at its core, not a racial or ethnic issue, the implications of the structural change were decidedly not race or ethnicity neutral.

One graphic glimpse of its legacy is illustrated in Table 4–5 (which parallels Table 4–2). Workers are divided into poor, middle-class, and

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–5 Income Group Status of Workers (percent)

 

1962

1973

1982

1991

1997

White Men

Poor

10

11

12

12

12

Middle Class

66

62

57

55

54

Affluent

24

27

31

33

34

Black Men

Poor

26

17

17

19

16

Middle Class

70

75

70

65

65

Affluent

4

8

13

16

19

Hispanic Men

Poor

NA

14

14

17

17

Middle Class

NA

66

72

70

69

Affluent

NA

10

14

13

14

Mexican Men

Poor

NA

15

14

19

18

Middle Class

NA

75

71

70

70

Affluent

NA

8

15

11

12

White Women

Poor

32

31

30

25

23

Middle Class

65

66

66

64

62

Affluent

3

3

4

11

15

Black Women

Poor

60

34

30

27

24

Middle Class

39

63

67

65

65

Affluent

1

3

3

8

10

Hispanic Women

Poor

NA

31

30

31

28

Middle Class

NA

68

67

67

65

Affluent

NA

1

3

6

7

Mexican Women

Poor

NA

39

29

34

31

Middle Class

NA

60

68

61

63

Affluent

NA

1

3

5

6

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

affluent groups, based on their wages.2 For women especially, this trichotomy is not equivalent to poverty statistics in the conventional sense. Federal poverty thresholds are based on family incomes (with equivalence-scale adjustments for family composition and size). Thresholds here are based on each individual’s wages only and simply separated into three wage classes to determine where different demographic groups end up in the wage hierarchy and how that separation has changed over time. The dominant trend among White men is a sharp growth in the percentage of affluent workers. By 1997, more than one-third of all White male workers were affluent compared to one-fourth in 1962. Using these thresholds, the relative decrease in middle-class workers shown is the result of an increasing percentage of affluent workers, rather than any expansion in the ranks of the poor.

Our central interest centers on the relative status of the other groups. The principal reductions in the ranks of poor working Black men were concentrated between 1962 and 1973. Thereafter, the era of stagnation took over, with Black male poverty rates essentially the same in 1997 as they were in 1973. Not all was stagnant in the economic status of the Black community, however. In the 35 years spanned by the data in Table 4–5, there was almost a quintupling in the relative number of affluent Black male workers. Unlike the working poor data, the trend among the Black affluent showed no sign of abatement. Growing numbers of Black male workers not only entered the middle class, they went right past it.

In a more muted way, similar trends exist for Hispanic men. Among all Hispanic and among Mexican men, the percentage of poor drifted upward over this period. Simultaneously, the percentage of affluent Hispanic men rose, although, in contrast to Black men, their entry into the ranks of the affluent was completed by the early 1980s.

Income divisions in Table 4–5 must be interpreted with even more care with regard to women. As stated earlier, many women whose own wages may be low live in families with relatively high incomes. These women would not be classified as poor in any welfare sense. Yet, it is still of interest to examine how they rank based solely on their wages alone. Because many women work part time, much larger percentages of them had weekly wages such that they were categorized as poor; only a relative handful were able to join the ranks of the affluent. The division into these three groups changed little for White women until the early 1980s. Thereafter, there was a rapid decrease in the percentage of poor White women,

2  

Data are normalized so that 11 percent of White working men in 1979 are defined as poor. Similar rules as those contained in footnote 1 were used to set the other threshold values.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

and an even more impressive increase in their percentage in the affluent class. In contrast, dramatic upward trends among Black women took place during the 1960s, when their representation among the poor was almost cut in half. At a much reduced pace, these improvements for Black women continued, and in 1997, one-fourth of Black women had weekly wages classifying them as poor, compared with six-tenths of them classified as poor in the early 1960s. In contrast, changes for Hispanic women are modest—a slight reduction in the percentage of poor alongside a more pronounced increase in their percentages among the affluent.

One must be impressed by the diversity in secular wage trends among these different minority group workers. Not only did the size of their wage gaps with White men change at quite different rates, but the periods during which major changes occurred are all over the map. A single factor, common in timing to all groups, apparently will not explain all the changes that have been taking place during the past few decades in the structure of wages across these demographic groups.

EXPLAINING RECENT WAGE TRENDS

To this point, what have been presented mostly are facts that need to be explained. How can such an extraordinarily diverse set of relative wage trends across groups be explained? The potential explanations are (1) differences in schooling, (2) changing quality of minority students, (3) affirmative action, and (4) structural labor-market changes, especially rising wage inequality. For women, to this set must be added (1) the increased entry of women into the labor market and (2) the growing amounts of labor-market experience that go along with it. Finally, additional issues related to their immigrant status arise when the subject turns to Hispanics.

RECENT TRENDS IN EDUCATION

No discussion of trends in the wage gap can proceed far without addressing the role of schooling. Figures 4–5 and 4–6 plot education deficits of each demographic group, with White males as an index. Schooling differences still persist between the races, but to a lesser degree now than at any time in our history. Figure 4–5A shows the education deficit of Black male workers steadily decreased from a more than 2-year schooling deficit, and plateaued at 0.5 year by the mid-1990s. If these schooling trends are compared with trends in the male racial wage gap, the issue is not the early years when the two series (wage gap and schooling deficit) moved in lockstep. Rather, the anomaly involves the past 20 years when

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

schooling deficits continued to narrow while male racial wage gaps stagnated.

If only younger male workers are examined (Figure 4–5B), clearly a steady narrowing of schooling deficits took place in the 20 years between 1962 and 1982. Throughout this century, schooling has been the engine of Black economic progress, but educational progress for men stopped abruptly in the 1980s when the schooling gap of young Black male workers remained constant at about 0.5 year. The 1980s and 1990s cohorts represent the first generation of Black workers who have not decreased schooling gaps with White workers. This end of racial progress is not the result of growing numbers of Black high school dropouts, as the percentage of high school dropouts continued to fall in the 1980s. The problem lies in the transition from high school to college; Black men were no more likely to make that transition in 1990 than 15 years earlier.

These trends could not be any more different among Hispanic workers. For both male workers at all experiential levels and those with 10 or fewer years’ experience, their schooling gap with White workers has remained constant at more than two years. Because Black workers had been steadily closing the deficit, by the mid-1990s the average Hispanic worker had a two-year education deficit, compared to his Black counterpart.

From 1962 to 1997, there were never large differences in average schooling between White male and female workers (Figure 4–6A). Gender disparities in schooling among workers depend on both underlying education trends in the full population and on trends in female labor-force participation rates across schooling classes. For both reasons, among workers, White male schooling actually rose faster than White females’ until after the early 1980s (see Smith and Ward, 1989). Then, White female workers took the lead until they reclaimed their traditional educational advantage with White males. This resurgence stems from more rapid education gains among women compared to men; gains that were reinforced by more rapid gains in labor-force participation rates among more educated women. Paralleling their rapid relative wage advances, Black female workers steadily narrowed their education disparity with White male workers. It is a remarkable point in American history that, at least among young workers, there were in 1990 essentially no differences in schooling between White men and Black women. Finally, Hispanic women did somewhat better than their male counterparts in that they slightly narrowed their schooling gaps with White men.

To sum up, what role can changing education disparities play in accounting for changing wage disparities across these demographic groups since the 1960s? Until the mid-1970s, schooling continued to assume its historical role as the primary determinant of the male racial wage gap.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–5 Education deficits, as percentages, for Black and Hispanic (A) males and (B) males with 10 or fewer years of experience.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–6 Education deficits with White men, as percentages, for Black and Hispanic (A) females and (B) females with 10 or fewer years of experience.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

Male education differences by race, however, cannot account for the timing and magnitude of the racial stagnation since the mid-1970s; nor can schooling account for the impressive narrowing of the gender wage gap since the 1960s. The stagnation and decrease in Hispanic wages relative to U.S.-born Whites, however, is consistent with the apparent lack of relative educational progress of the average Hispanic worker. The adjective apparent is necessary because the absence of progress is mostly the result of a compositional effect of the addition of new Hispanic immigrants with low levels of schooling.

ACHIEVEMENT SCORES

One possible explanation for the stagnation in Black labor-market gains, especially among Black men, that fortunately can be dismissed is that their labor-force quality fell. The origins of any such decrease presumably would lie in the schools. If the quality of minority students had fallen, this would have eventually shown up as lower wages in the labor market. In spite of widespread and legitimate concerns that the quality of contemporary schooling for minority students is low and falling, achievement data tell a different story. Table 4–6 documents a persistent improvement in the achievement of Black high school students compared to that of White students. For both reading and math, achievement scores of White 17-year-olds drifted only slightly upward during the past two decades. In contrast, achievement scores of Black 17-year-olds have consistently improved, and the racial gap has narrowed considerably. To cite examples, 45 percent of the racial gap in reading proficiency, and 33 percent of the gap in math proficiency, between Black and White 17-year-olds has been erased since 1971.

This improvement is not the result of less able Black students dropping out and not taking the exam. Test scores are also presented for 13-year-olds, for whom the high school dropout rate is not an issue. Across math, reading, and science the achievement gap by race among 13-year-olds has been narrowing. Similar evidence of a narrowing in scholastic achievement gaps by race can be obtained from Scholastic Aptitude Test scores of college-bound seniors.

Monitoring trends in student achievement is far more difficult among Hispanics because of the possible skewing of data caused by the continuing influx of new immigrants. If new immigrants perform less well in these tests, average Hispanic scores may decrease without any change in ability of any Hispanic students. In spite of this potential problem, achievement scores of Hispanic students also improved relative to non-Hispanic Whites, albeit at a slower rate of gain than Black students enjoyed.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–6 Achievement Scores of High School Students

Proficiency in

Year

Reading

1971

1980

1984

1990

1996

White 13 yr old

261

264

263

262

267

Black 13 yr old

222

233

236

242

236

Hispanic 13 yr old

237

240

238

240

White 17 yr old

291

293

295

297

294

Black 17 yr old

239

243

264

267

265

Hispanic 17 yr old

261

268

275

265

Percent of students rated adept at reading

1971

1980

1984

1990

1996

White

43.2

43.3

46.3

50.1

45.1

Black

7.7

7.1

16.2

16.9

18.0

Hispanic

16.5

21.2

27.1

20.0

Science

1973

1977

1986

1990

1996

White 13 yr old

263

256

257

264

266

Black 13 yr old

205

208

221

226

226

Hispanic 13 yr old

213

226

232

232

White 17 yr old

304

298

298

301

307

Black 17 yr old

250

240

253

253

260

Hispanic 17 yr old

262

259

262

269

Mathematics

1973

1978

1986

1990

1996

White 13 yr old

274

272

274

276

281

Black 13 yr old

228

230

249

249

252

Hispanic 13 yr old

239

238

254

255

256

White 17 yr old

310

306

308

310

313

Black 17 yr old

270

268

279

289

286

Hispanic 17 yr old

277

276

283

284

292

SAT scores of college-bound seniors

 

1976

1980

1990

1995

Verbal

White

 

451

442

442

448

Black

 

332

330

352

356

Mexican-Americans

 

371

372

380

376

Mathematics

White

 

493

482

491

498

Black

 

354

360

385

388

Mexican-Americans

 

410

413

429

426

 

SOURCE: National Center for Education Statistics: Education Testing Service (1991).

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

AFFIRMATIVE ACTION

What is the evidence, from 1960 to 1990, of the effect of affirmative action enforcement on the economic position of minorities? Overall, the evidence is mixed with much more consensus on employment effects than on wages, and disagreements on the exact timing and sustainability of impacts.

On one issue, there appears now to be little ambiguity. There is abundant evidence that affirmative action changed where Black men and women worked and the jobs they were able to obtain, especially in the late 1960s and early 1970s (Chay, 1998; Donahue and Heckman, 1991; Holzer and Neumark, 1999; Smith and Welch, 1984). If affirmative action were effective, minority representation should have expanded more among firms required to report to the Equal Employment Opportunity Commission (EEOC). Because they have more to lose, the greatest gains in employment should also have occurred among federal contractors. Finally, the largest minority gains should have been detected within professional and managerial jobs.

The cumulative evidence does show these types of employment effects. For example, Smith and Welch (1984) compared time-series changes in minority employment by whether firms were covered by EEOC and whether the firm was a federal contractor. They show, for 1966, that Black men were 8 percent less likely than White men to work in covered firms; by 1980, however, Black men were 26 percent more likely to work in EEOC-reporting firms. Adding to the suspicion that these were affirmative action-induced changes, these employment shifts were dominated by federal contractors.

As large as these increases in total employment seem, they pale next to changes within professional jobs. Black male professionals were 41 percent less likely than White professionals to work in covered firms in 1966. By 1980, Black male professionals were equally likely to be found in covered firms. A critical issue relates to the timing of effects. The largest employment changes for men occurred between 1966 and 1970, the first four years of required reporting. After 1974, there was little further change in the location of Black male employment by EEOC coverage.

Changes in the sectoral location of employment were even more dramatic and enduring among Black women. In 1966, Black women were 9 percent less likely than White men to be employed in the covered sector. By 1980, they were 54 percent more likely than White men to work in the covered sector. The relocation was more pronounced for officials and managers—39 percent less likely in covered employment in 1966; 54 percent more likely by 1980. Compared to these racial differences, there was a slight expansion in employment of White women (and officials and

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

managers) in covered EEOC employment. Many clerical jobs that had been traditionally held by White women in the covered sector now were held instead by Black women.

In sum, Smith and Welch (1984) demonstrate that the employment effects of affirmative action differ between Black women and Black men. For men, there was a rapid increase in demand for Black workers that appears to have been largely completed, in stock terms, by 1974. For Black women, the increase in demand was even larger and persisted throughout the 1970s.

This evidence of employment effects is supported in other studies. For example, Chay (1998) analyzes the effects of the 1972 expansion of EEOC coverage to employers with 15 to 24 employees and finds that there were shifts in employment favoring Black workers following this expansion in coverage, particularly in the South (where state laws that covered such firms had not previously existed). Similarly, in an important paper, Heckman and Payner (1989) demonstrated that 1965 was a year of an extremely sharp break in the employment of Black men and women in the textile industry in South Carolina. This break was so severe and its timing so precise that there is no other plausible explanation except that it was the consequence of the passage of the Civil Rights Act of 1964.

The wage effects that one can assign to affirmative action are far more controversial and uncertain; however, the rapidity and magnitude of the increases in Black male and female wages during the late 1960s and early 1970s cannot be easily explained by the more slowly evolving changes in the skill distributions between the races. For example, the case that affirmative action pressures, which lead to shifts in employment, contributed to relative gains in Black male wages in the late 1960s and early 1970s is a strong one. For similar reasons, the case is even stronger that affirmative action played an important role in the extraordinary wage gains enjoyed by Black women throughout the late 1960s and 1970s.

Did cutbacks in affirmative action resources and pressures also account for the recent labor-market stagnation especially for Black men? Some feel that affirmative action is the likely culprit behind Black economic stagnation because these policies were significantly changed in the 1980s (Smith, 1993) (Table 4–7). EEOC resources were indeed cut during this period. EEOC inflation-adjusted budgets grew almost 15 percent per year during the 1970s. Although there was some slowdown in the last half of the decade, constant-dollar EEOC budgets expanded by 7 percent per year during the Carter administration; and almost 1,400 budgeted positions were added to the agency (a growth of 50 percent) between 1976 and 1980.

There is no question that during the Reagan administration there was an abrupt end to the growth in EEOC resources. EEOC constant-dollar

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–7 Summary Statistics for EEOC

Year

Budgeta ($1000)

Positionsa

Charges Resolvedb

Lawsuitsa

1966

16,098

314

6,400

NA

1970

55,428

780

8,480

NA

1975

164,319

2,384

62,300

180

1980

242,829

3,777

49,225

326

1985

244,113

3,107

46,411

 

1991

237,954

2,796

45,442

495

1995

244,998

2,813

54,464

318

1997

239,740

2,586

62,533

296

NOTE: Budget in 1997 dollars.

aSource for 1995 and 1997 data: A Summary of Enforcement Data and Budget and Staffing Information for the U.S. Equal Opportunity Commission. Personal communication, September 1998.

bSource: A Title VII of the Civil Rights Act of 1964 Charges FY 1991–1997. From Enforcement Data at EEOC’s website.

TABLE 4–8 EEOC Actionable Chargesa

Year

Race

Sex

Age

Disability

1965

0

0

0

0

1966

3,254

2,053

0

0

1970

11,806

3,572

0

0

1975

33,174

20,205

0

0

1980

44,436

28,171

14

0

1986

47,264

30,576

23,142

0

1992

49,309

41,314

30,064

0

1995

50,879

48,923

28,858

34,282

aPrior to 1995, this series was called “Actionable Charges” and taken from EEOC Annual Reports. Subsequently these data are from “Fiscal Year Charge Receipts by Geographic Region EEOC and FEP Agencies,” EEOC Annual Report.

budgets fell during this period, and the number of positions declined by almost 1,000. Two presidents later, through the 1990s, there was virtually no resource recovery.

As EEOC resources and personnel decreased during the 1980s, so did measurable output. The sharp break in the 1980s was not so much in the total amount of activity, as in its composition and the resources available per case. Spurred by the passage of the Age Discrimination Act in 1979, age came into its own during this decade. Starting with only 14 cases in

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

the year after passage of the act, the number of age cases increased at an astonishing pace to more than 30,000 by 1992 (Table 4–8). Even without this explosion in age related charges, the significance of race was declining. By 1992, only 40 percent of all EEOC cases involved race issues, compared to 85 percent in 1970. During the 1990s, the new competitor for enforcement resources was cases related to the passage of disability laws. Combined age and disability cases now account for 20 percent more cases than those associated with race.

The declining importance of race on the EEOC’s agenda reflects a more general dilution of race as this country’s core civil rights concern. Since 1965, the road to equal rights has become very crowded. The quest for racial justice was the clear moral force behind the 1964 Civil Rights Act, with women added in an unsuccessful attempt to scuttle the legislation. Subsequently, Hispanics began to rival Blacks in political clout, and protected minority group status was extended to men older than 40 years old, people with disabilities, and gays. The end result is that more than three-quarters of today’s labor force enjoy protected minority group status. Blacks are now a minority in the protected minority class, which itself represents the majority.

Trends in the courts reinforce these changes at the EEOC. In the early years, plaintiffs in employment discrimination cases were the clear winners in the courtroom battles, winning twice as often as defendants did. The odds quickly began to shift throughout the 1970s and 1980s, until firms now win three times as many cases as plaintiffs. Not only were the odds shifting in the courtroom, but one of the most potent weapons in discrimination cases was steadily falling into disuse. A firm’s potential financial cost from a discrimination lawsuit was substantially magnified when an individual complaint was filed as representing an entire class of workers. In 1971, 25 percent of employment discrimination cases were class-action suits. Today, less than one in every 200 cases is a class action.

The fact that affirmative action did affect Black employment in the 1970s, and that that policy changed so dramatically in the 1980s, makes it easy to understand why affirmative action retrenchment may also have been responsible for the racial wage stagnation in the 1980s. Although it is plausible, it turns out to be incorrect. The main problem is that the timing of the wage stagnation had little connection to the timing of affirmative action cutbacks. For example, Figure 4–2A shows that the stagnation in aggregate Black male wages began in 1977 and remained so during the Carter years, when EEOC resources were expanding rapidly. Indeed among Black and Hispanic male high school graduates (Figure 4–3), the bulk of the decrease in the racial wage gap took place during the EEOC surge in resources. Among college graduates, the large decrease in the

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

male racial wage gap appears to have taken place well after the cutback in EEOC resources.

During the initial phases of affirmative action, there was a remarkable surge in the incomes of young, college-educated Black men to almost complete wage parity. There is little question that this was an affirmative action-induced benefit. First, the sharp acceleration in Black male wage gains during the late 1960s and early 1970s coincided with the large affirmative action-induced employment effects discussed earlier as Blacks moved in large numbers into the covered sector. Second, the wage gains Blacks achieved during these years are simply too large to be explained by the more slowly evolving historical process of racial skill convergence. This was, however, an ephemeral benefit, as early wage gains exaggerate the permanent affirmative action wage effect. For college graduates, this erosion marked both decades, until we had roughly come full circle with a wage deficit in 1997 little different than the initial wage deficit.

Why did the early gains resulting from affirmative action not persist? By the mid-1970s, the labor-market adjustment to affirmative action had largely taken place. Affirmative action caused many more Black men to be employed in the EEOC-covered sector. But this adjustment was largely finished by the mid-1970s, so that there was little additional reason for these firms to disproportionately hire Black men. In addition, the Black male supply response was rapid and large. In the 10 years after 1967, the number of Black male college graduates in the workforce had more than doubled, while the increase in the number of White college workers was less than half as large. There were lots more college-educated Blacks. This large supply response had two effects. First, it directly produced a decrease in the relative wages of Black male college graduates among new entrants; second, it also eventually eradicated the initial wage benefit received by the generation of Black college graduates most favorably affected by affirmative action.

Another difficulty in assigning a significant wage role to affirmative action is that many other confounding forces were at work that could have altered the racial wage gap. In particular, the labor market was going through a major structural shift, one that was extremely unfavorable to minority workers.

RISING WAGE INEQUALITY

This structural shift involved the substantial widening of wage dispersion (Juhn et al., 1991). Because, as a first approximation during the 1960s, distributions shifted up or down in more or less uniform ways, until the mid-1970s, it was safe to compare groups based on means or medians alone. Now, the median describes almost no one very well.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–7 Wage growth relative to 1962.

Those whose wages were initially less than the median suffered significant real-wage losses, while workers earning more than the median enjoyed inflation-adjusted wage increases.

Figure 4–7 summarizes these changes by plotting percent wage changes relative to 1962 for White male workers. To see the distributional character of the changes, these plots are listed for the 20th, 50th, and 80th percentiles. With a bit of oversimplification, this period can be divided into three segments—median wage growth of 15 percent between 1962 and 1971, a real wage decrease of 14 percent between 1971 and 1981, and (with due respect for business cycle variation) constant real wages through 1997.

Using the same time-demarcation points, the world was very different at the bottom than at the top. For example, contrast the 20th and 80th percentiles. During the first period of sustained economic growth, real wages were growing for everyone, albeit at a more rapid rate at the top (17 percent at the 80th, and 8 percent at the 20th percentile). The bottom truly fell out between 1971 and 1981, with a real wage decrease of 6 percent at the 80th percentile, but a whopping 25 percent at the 20th percentile. Things improved somewhat after 1981 (wage growth of 10 percent at the top and a decrease of 8 percent at the 20th percentile). The cumulative effect has been enormous; since 1971, a 37 percent fall in wages at the 20th percentile compared to wages at the 80th.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

Quite appropriately, this structural change has been described without mentioning race, ethnicity, or gender. Although the reasons for this structural labor-market shift have nothing to do with such matters, the consequences were anything but race or ethnicity neutral. The reason is, workers in these demographic groups are found in very different places in the wage distribution than are White males. For example, in 1971 the median Black male worker earned $412 a week—equivalent to what a White worker earned at the 25th percentile of the White male wage distribution. Between 1971 and 1981, wages at the 25th percentile of the White wage distribution declined by 20 percent—quite close to what was happening to the median Black worker.

Given the size of this structural change, it is actually remarkable that, when using means or medians, recent years were only characterized as racial labor-market stagnation and not as a free fall. If Black workers were treated the same as comparable Whites (those in the 25th percentile of the White wage distribution), the median Black male wages would have actually decreased by 27 percent since 1971 instead of increasing by 3 percent. If that 27 percent were added to what actually happened, evaluated at the median, wages of Blacks would be lower than those of Whites by single-digit amounts. These last 20 years were actually a time during which the slowly evolving historical forces continued to close the wage gap between Black and White male workers. These forces were simply overwhelmed by the structural shift of rising wage dispersion.

Hispanic workers also felt the consequences of widening wage dispersion. Figure 4–8A illustrates the process by plotting percent wage changes at each percentile of the wage distribution for Hispanic and U.S.-born White residents of Los Angeles County between 1970 and 1990. Both distributions reveal growing wage dispersion—wages grow more the higher one is in the wage distribution. Although they share that similarity, the Hispanic curve lies well below that of U.S.-born Whites. Although there was virtually no change in White males’ median wages, real wages for the Hispanic median-wage male worker fell by almost 40 percent. The distance between the curves is so large that one must get almost to the 90th percentile before any wage gains are registered.

Most, but not all, these differences are the result of rising wage dispersion. Figure 4–8B adjusts the Hispanic curve by subtracting from their observed wage changes the wage change observed for comparable Whites (at the White percentile with the same wage as Hispanics in 1970). The adjusted Hispanic wage-percentiles show about a 10-to-13 percent negative wage change that becomes somewhat smaller above the median. Seventy-five percent of declining wages at the median for Hispanics in Los Angeles was caused by widening wage dispersion in that city. The re-

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–8A Wage growth from 1970 to 1990 for U.S.-born male White and Hispanic Los Angeles County residents. County residents.

FIGURE 4–8B Adjusted Hispanic wage growth from 1970 to 1990 for Los Angeles

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

maining 10-to-12 percent wage deficit was the result of factors unique to the immigrant experience.

SPECIAL ISSUES WITH HISPANIC IMMIGRANTS

There are three overriding issues that have dominated labor-market research about immigrants, and Hispanic immigrants in particular: (1) the changing labor-market skills of new immigrants, (2) life-cycle assimilation, and (3) the extent of generational progress. Despite the extensive available research on these issues, they remain controversial.

The Changing Labor-Market Quality of Immigrants

Although wages of immigrants in the United States typically far exceed wages in their home countries, how do they compare with the wages of U.S.-born workers? A first step toward an index of their changing relative economic status is obtained by looking at relative wages of newly arrived immigrant cohorts. As is the case with most such comparisons, “newly arrived immigrants” are defined as those who immigrated within the past five years, based on the census question about what year respondents came to the United States. Table 4–9 lists wage differentials of newly arrived Hispanic male immigrants compared to U.S.-born Hispanics. Although recent arrivals have always earned much less than U.S.-born workers, this wage gap widened considerably from 1970 to 1990 for both male and female Hispanic immigrants. In 1970 the gap for Hispanic men was 48 percent; by 1990 it had almost doubled to 83 percent. Similarly, the gap for Mexican immigrants rose from 65 percent in 1970 to 94 percent by 1990.

TABLE 4–9 Percent New Arrival Latino Male Wage and Education Gap with Native-Born Men

 

Year

 

1940

1960

1970

1980

1990

Hispanic Men

% wage deficit

–52.2

–47.6

–47.7

–63.3

–82.9

Education deficit (years)

1.27

1.90

2.71

4.31

4.27

Mexican Men

% wage deficit

–87.0

–55.6

–65.4

–71.1

–93.6

Education deficit (years)

3.31

4.34

5.19

5.73

5.05

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

Why did relative wages decrease among new Hispanic immigrants? Part of the answer is supplied by the education deficits listed in the same table. Even though recent new Hispanic arrivals are better educated than their predecessors, the education of U.S.-born workers has been rising even faster. Since 1970, the education gap for new Hispanic immigrants increased from 2.7 years to 4.3 years. The reason for the expanding wage gap is not much of a mystery; the gap in their relative skills widened over time. Especially during the most recent decades, as the skill gap widened, the wage gap widened even more. Rising wage inequality implies larger wage differences, holding skill differences constant. Therefore, as skill differences between Hispanic immigrants and U.S.-born Hispanic workers expanded over time, the wage difference expanded even more.

But this is an incomplete story for two reasons. First, Jasso et al. (2000) report, using data from the CPS, that during the 1990s, the relative incomes and schooling of Hispanic immigrants rose rather than decreased, contrary to the common assertion. Second, in virtually all such comparisons of new immigrants, data compiled about relative incomes and schooling rely on census- or CPS-style questions concerning the year of immigration. Jasso et al. (2000) demonstrate that data obtained from such questions are misleading for two reasons. (1) The census question concerning time since immigration is inherently confused in light of the frequent trips made by immigrants back and forth to their home countries.

In addition, many immigrants in the census and CPS files are not legal immigrants. A recent study estimated that only 20 percent of those Mexicans who reported in the 1995 and 1996 CPS that they had immigrated since 1990 were legal immigrants (Passel, 1999). The remainder were either nonimmigrants (those in the United States on a temporary visa; tourists and students are two numerically large examples) or, in the case of Mexicans, primarily illegal immigrants. When data are presented on trends for legal immigrants alone, a quite different picture emerges. During most of the last 25 years, the labor-market quality of all new male legal immigrants (all ethnic groups combined) has been as high as or higher than that of male U.S.-born workers. (2) Although the labor-market quality of all male legal immigrants was indeed decreasing during the 1970s and early 1980s, there has been a steady rise in the labor-market quality of all legal immigrants during the last half of the 1980s and throughout the 1990s. If illegal immigrants comprise an increasing percentage of the Mexican foreign-born in the CPS and the census, this will lead to a steadily rising wage gap with U.S.-born men. The changing composition of Mexican immigrants between those who are legal, those who are non-immigrants, and those who are undocumented, will be an important underlying reason for any changes in immigrant wage differences over time.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

Life-Cycle Assimilation

Another central issue concerning immigrants and, hence, the economic status of Hispanics, concerns economic assimilation over the immigrant’s lifetime. This issue has been a source of considerable controversy (Borjas, 1985; Chiswick, 1978), but some consensus is now being reached. To address this issue, it is necessary to follow groups of immigrants throughout their lives in the United States. A representative sample of patterns resulting from this tracking of immigrant cohorts is presented in Figures 4–9 and 4–10 (see, also, Smith and Edmonston, 1997). These data plot, for specific cohorts of immigrants defined by time of entry into the United States, their percent wage gap with U.S.-born White workers of comparable age. These figures deal with relatively young immigrants, age 25 to 34, during the census year immediately following their initial entry. For all immigrants, Figure 4–9 plots data for men, Figure 4–10, for women, and both plot data separately for Mexican immigrants.

Consider first the profiles for all immigrants. On average, male and female immigrants narrow their wage gap with U.S.-born workers as their stay in the United States lengthens. Over time, the wage gap closes for some—significantly for immigrants from Europe and Asia and modestly for others. But, as these figures also illustrate, initial gaps at time of entry have been growing; and the time it will take to reach wage parity with U.S.-born workers will take longer.

This positive overall evaluation of within-generation wage assimilation does not pertain to male or female Mexicans, who remain the exception to the general rule. Both female and male Mexican immigrants essentially maintain their initial wage gaps with U.S.-born White workers. It is important, however, to keep the reference group—U.S.-born White males—in mind when interpreting this finding. Our result implies that Mexican immigrants experience wage growth throughout their careers in the United States that is proportionally the same as U.S.-born Whites. Seen in this light, this result could be interpreted more positively as indicating that Hispanic immigrants are assimilating into the same career experiences as U.S.-born Whites.

However, when the reference group is non-Mexican immigrants, careers of Hispanic immigrants do not stand up as well. Why do Mexican immigrants do less well than other immigrant groups? One explanation that actually goes in the other direction stems from the previously mentioned point about the composition of immigrant samples in the census and CPS—i.e., that a large percentage of those whom researchers have labeled new immigrants are actually illegal immigrants or nonimmigrants. This percentage is particularly large (more than a majority) for Mexican immigrants. Because illegal immigrants are, on average, less skilled than

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–9 Career wage growth of new male immigrant cohorts. Each group consists of 25–34 year old males. (A) All new immigrants. (B) New immigrants from Mexico.

other Mexican immigrants, and will probably have a shorter expected duration in the United States, selectivity of out-migrants from the original group alone would imply that the data should show improvement in relative incomes of Mexican immigrants as time since immigration lengthens. Because the data indicate, instead, a basically constant ratio, this

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–10 Career wage growth of new female immigrant cohorts. Each group consists of 25–34 year-old women. (A) All new immigrants. (B) New immigrants from Mexico.

implies that the true relative life-cycle wage progression of Mexican immigrants may actually be even more negative.

Why would this be so? To date, there is no convincing answer to this question, which should receive high priority in the research agenda. One can speculate about the role of language or the implications of the geo-

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

graphic closeness to country-of-origin, but there is little concrete evidence to document any compelling explanation. Other immigrant groups— Asians would be a good example—arrive without complete English language proficiency, and many immigrants have frequent trips back and forth to their home countries.

Part of the problem lies in the inherent ambiguity in using tracking of cohorts across census or CPS files to evaluate life-cycle progress of immigrants. Although cohort tracking has become the standard technique for evaluating economic assimilation, it is problematic as immigrant cohorts are not closed. An initial immigrant cohort can be depleted as some immigrants return home. If, as seems likely, those immigrants who left the country were highly selective, the wage trajectories obtained from cohort tracking will be biased. For example, if high-skill/high-wage immigrants left, average wages of the remaining members of the cohort would decrease even if the wage of every remaining immigrant stayed the same. This problem caused by out-migration from an initial entering immigrant cohort is especially severe among immigrants from Mexico. In the aggregate, roughly one-third of the 1970 Mexican immigrants emigrated by 1980. An even smaller percentage of the 1970 cohort remained by 1990. Until this problem of the nature of the selectivity of emigration of previous Mexican immigrant cohorts can be resolved, one should be cautious about reaching any strong conclusions about the nature of life-cycle labor-market careers of Mexican immigrants.

Generational Assimilation

Regarding the issue of generational assimilation, the conventional wisdom for Hispanics—whom some argue have not enjoyed the same level of success of earlier European immigrants—leans toward the pessimistic side. The reasons for pessimism vary, but one theme is that Hispanic immigrants and their children may be less committed to assimilation than the Europeans were. The data supporting this concern are often derived using cross-sectional comparisons between first-, second-, and third-generation Hispanics of their income and schooling levels. Such comparisons universally show a narrowing of the schooling and income gap between the first and second generation, but either retrogression or little progress between the second and third generation (Smith, 1999). Although conclusions about generational assimilation are often drawn from such data, these inferences are not appropriate. In any cross section, members of the second generation are not sons and daughters of current immigrants, and members of the current third generation in a cross section are not direct descendants of current, second-generation persons.

Fortunately, the conventional wisdom appears to be in error. In Smith

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

(1999) the data are arrayed in a way that more directly tracks progress made across generations. The schooling deficits of Hispanics are uniformly smaller in the second generation than in the first and smaller still in the third generation. For example, the mean education disparity among all first-generation Mexicans was 4.94 years and decreased to 2.95 years among second-generation Mexicans. The youngest third-generation cohorts had a schooling gap of less than 1 year compared with White men— half as large as their fathers’ education deficit.

At least based on the historical record, fears about Hispanic generational assimilation appear to be unwarranted as second- and third-generation Hispanic men have made considerable strides in narrowing their economic disparities with U.S.-born White men, as schooling gains across the generations were translated into generational progress in incomes. Each new Hispanic generation not only had higher incomes than their predecessors, but their economic status converged relative to White men with whom they had to compete.

HOUSEHOLD WEALTH

Until recently, data limitations forced most comparisons of racial economic status to rely only on income differences, but improvements in measuring wealth have made contrasts of household wealth levels feasible. Table 4–10 lists mean and median household wealth levels by race derived from the Panel Study of Income Dynamics (PSID).3 Racial wealth gaps are extremely large, especially compared to the already sizable household income differences by race. In 1984, mean wealth of non-White households was 22 percent of wealth of White households, and the income ratio was 0.58:1. Wealth differentials are even larger if medians are used as the yardstick; using medians, in 1984 non-White households had less than 10 percent of the wealth of White households. The glimmer of hope is that the relative wealth differentials narrowed over the 10-year period covered in this table. By 1994, mean non-White wealth rose to 31 percent of that of Whites.

Racial and ethnic disparities are even greater in financial assets; these

3  

PSID is a longitudinal survey of a representative sample of U.S. individuals (men, women, and children) and the families in which they reside. The study has been conducted at the Survey Research Center, University of Michigan, since its beginning in 1968, with the Inter-University Consortium for Political and Social Research (ICPSR). Wealth modules were included in the 1984, 1989, and 1994 PSIDs. See Juster et al. (1999) for a detailed discussion, and see Browning and Lusardi (1996) for an excellent review of the micro savings literature.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–10 Wealth and Income Levels by Race

 

Wealth

Income

 

Mean

Median

Mean

Median

A. Total Household Wealth

White

1984

169.0

59.4

48.9

39.1

1989

181.1

59.6

59.6

39.5

1994

178.5

64.7

52.9

41.0

Non-White

1984

37.1

5.3

28.5

21.7

1989

53.5

6.8

29.9

22.3

1994

54.5

10.4

31.9

23.8

B. Financial Assets

White

1984

48.0

6.0

 

1989

48.6

7.4

1994

60.9

13.7

Non-White

1984

7.2

0.0

 

1989

8.6

0.0

1994

13.7

0.0

 

SOURCE: PSID—1996 dollars. Calculations by author.

more-liquid assets may be a better index of resources a household has on hand to meet emergencies. In 1984, mean financial assets for non-Whites were one-seventh of those of White households. Not only is the ratio of financial assets by race low, the financial assets held by non-White households are meager. In 1984, non-White households had a little more than $7,000 per household in financial assets. But even this number exaggerates their holdings due to the extreme skew in the distribution. In all three years, the median non-White household had no financial assets at all.

A more complete description of racial wealth differences is given in Figure 4–11, which plots, for Whites and non-Whites, household wealth at percentiles of the wealth distribution. These data illustrate the extreme skew in wealth holdings—the top 5 percent of White households have 50 percent more wealth than White households at the 90th percentile, while those at the 90th percentile have more than five times as much as the median White household. This nonlinearity prevails within the lower half of the wealth distribution as well, as the median White household has

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

FIGURE 4–11 White and non-White wealth distribution in 1984 (in 1996 dollars). (A) Percentiles 1 to 50. (B) Percentiles 51 to 98.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

10 times as much wealth as those at the 20th percentile. A similar extreme skew characterizes the non-White wealth distribution.

Why are racial wealth differentials at least twice as large as house-hold-income differences in the same years? One possibility can easily be dismissed; it is not a consequence of financial wealth being transmitted across generations with the poor unable to give and the affluent ensuring their heirs remain at the top through financial inheritances. Although plausible, this possibility is quantitatively unimportant as the vast majority of households—both White and non-White—do not receive any financial inheritances.4 Using PSID, mean inheritances (in 1996 dollars) for Black households were about $1,000; for White households about $10,000. Even if these inheritances were completely saved so that they show up in current household wealth, they would account for a small percentage of racial wealth differences documented in Table 4–11. Similarly, two-thirds of all White households and 90 percent of all minority households received no financial inheritances by the time the householders were in their mid-50s. Racial disparities in wealth would be almost the same if we subtracted that part of current wealth derived from past financial inheritances (Smith, 1995).5

If not financial inheritances, then all we have left is people saving at different rates from their income and/or experiencing different ex-post rates of return on their savings. The question then becomes, Why do Black and Hispanic households save so much less than White households? This is a much under-researched question partly because of the lack of adequate data. Because wealth disparities far exceed income disparities, there has been some thought that the reasons for the lack of savings behavior must lie in some unique historical events specific to the Black or Hispanic experience. For Blacks, it is sometimes argued that a culture promoting savings was not encouraged or was too difficult to develop. However, the data presented in Figure 4–11 suggest that it is premature to jump to race- and ethnic-specific explanations.

4  

This point about the relative unimportance of past bequests in creating wealth differences in the current generation is fundamentally different than the debate about the importance of the bequest motive in accounting for savings behavior of the current generation. The current generation’s savings behaviors are forward looking, so that any savings for bequests by the current generation are meant for the subsequent generation. Given the secular rise in bequests, savings for bequests may be a large part of a current generations’ savings, while their receipt of past financial inheritances are inconsequential to their own present wealth holdings.

5  

The argument here deals only with bequests and does not speak to the issue of the role of inter-vivos transfers in creating racial and ethnic differences in wealth. See Gale and Scholz (1994) for a good discussion of inter-vivos transfers.

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

TABLE 4–11 Wealth by Source (000 of dollars)

 

Household Wealth

Social Security

Pensions

Total

White

$264

$124

$109

$503

Black

72

94

65

231

Hispanic

80

94

39

218

 

SOURCE: Smith (1995).

Once again, the reason lies in a concave relation between savings or wealth and household income. This nonlinear relation between savings and income explains a good deal of the racial wealth discrepancies. Although vastly less than average White household wealth, wealth of the median Black household is actually quite similar to Whites with the same income. In 1994, White households with incomes equal to the median Black household lie at the 25th percentile of the White income distribution. If we compare wealth of the median Black to the 25th percentile White, their wealth levels are quite similar. When the nonlinearity is taken into account, income explains a good deal of racial differences in wealth. If low savings behavior is not a racial or ethnic issue, the unanswered question is, Why do low- and middle-income people save so little, no matter what their race or ethnic background?

Different racial groups may also experience different ex-post rates of return to their past savings, which may expand or contract wealth differences between them. For example, the surge in the stock market during the last 15 years increased the wealth of those households with greater amounts of stock market holdings. Because rates of stock ownership and holdings were larger among White households, wealth of White households increased more than wealth of Black households.

This dismissal of financial inheritance as an important source of racial differences in household wealth does not imply that all forms of intergenerational transmission are unimportant. For example, the inheritance of human capital is another source of intergenerational transmission that clearly creates racial and ethnic differences in income. Indeed, one important form in which these differences in inheritances of human capital show up are the education differences discussed earlier.

A second factor distorting racial wealth comparisons is that household wealth represents only part of the wealth households have at their disposal. Despite its widespread use, household wealth ignores large components of wealth that are critical to many households. For example, a household’s future expected Social Security benefits are a lifetime annu-

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

ity that can be discounted to give a present value of Social Security wealth. In a similar vein, private pensions, either directly in defined-contribution plans or indirectly for defined-benefit plans, are an important source of wealth for many households, especially in their pre- and postretirement years. Virtually all households in their 50s anticipate Social Security benefits when they retire, and more than half are counting on income from their pensions. When discounted to the present, these expected income flows translate into considerable wealth.

Table 4–11 demonstrates how large they actually are for families with one member aged 51 to 61. Mean household, Social Security, and pension wealth are listed in the table, providing a better measure of wealth than the conventional concept, which counts only household wealth. For Whites, total wealth is half a million dollars, rather than the quarter of a million in conventional household wealth. More important, the distortion caused by conventional wealth is much larger among minority families. Among Blacks and Hispanics, conventional household wealth is less than one-third of total wealth and Social Security represents the largest part of their wealth. If the enlarged total wealth concept is used, Black households have 46 percent as much as White households do compared to 30 percent for household wealth alone.

CONCLUSIONS

This paper has covered some wide territory in describing the major trends that have impacted on the economic position of Blacks and Hispanics. In addition to long-term trends that appear to be influenced mostly by skill-related factors, I have also evaluated alternative explanations for the recent stagnation in the economic position of minority households. These explanations included changing schooling, quality of students, affirmative action, and rising wage inequality. In addition, the role of immigration in changing the labor-market position of Hispanic workers was evaluated.

Long-term trends in the relative economic status of Blacks and Hispanics appear mainly to reflect long-term trends in their relative skills. For example, relative income differences and education deficits of Blacks compared to Whites are quite closely related. For Hispanics, it is also necessary to distinguish between immigrants and the U.S.-born. The slow rate of Hispanic educational and economic progress largely reflects a changing composition of the immigrant workforce. The rising percentage of immigrants in the Hispanic male workforce in recent decades slowed the aggregate gains in Hispanic schooling.

Until the mid-1970s, schooling continued to assume its historical role as the primary determinant of the male racial wage gap; however, male

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

education differences by race cannot account for the timing and magnitude of the male wage stagnation of the last 25 years. Moreover, there is little evidence that the quality of Black or Hispanic students entering the labor market during the past few decades has declined. Nor can schooling account for the impressive narrowing of the gender wage gap of the last few decades. However, the stagnation and decrease in Hispanic wages relative to U.S.-born Whites is consistent with the apparent lack of relative education progress of the average Hispanic worker. In addition, affirmative action led to changes in the location of minority employment and produced significant early jumps in the wages of Black men; however, these wages gains proved to be temporary.

The bulk of the remaining stagnation in minority group wages since the mid-1970s is the result, principally, of the rising wage inequality in the labor market. Because minority workers’ skills place them in the lower part of the wage distribution, increasing wage dispersion across skill levels will decrease their wages more than those of majority workers. The last 20 years were actually a time during which slowly evolving historical forces continued to close the wage gap of Black and White male workers. These forces were simply overwhelmed by the structural shift of rising wage dispersion.

Because of the central role immigration plays in the Hispanic population, some additional factors are relevant when discussing their changing economic status. The well-documented decrease in wages of new Hispanic immigrants appears to reflect three forces. First, a growing skill gap reinforced by an expanding wage gap (conditional on a given skill gap), and possibly an increasing percentage of undocumented Mexican immigrants among all recent immigrants in recent census and CPS surveys. Second, across their careers in the United States, wages of Hispanic immigrants appear to hold steady relative to the White U.S.-born majority. However, Mexican immigrants appear not to do as well over their careers as immigrants from other ethnic groups. There is no consensus explanation as to why this is so. Third, at least based on the historical record, fears about Hispanic generational assimilation appear to be unwarranted as second- and third-generation Hispanic men have made considerable strides in narrowing their education and economic disparities with U.S.-born White men.

Finally, I document in this paper that racial differences in household wealth are extremely large; much larger in fact than racial differences in income. However, in spite of these large racial disparities, the reasons for these large wealth disparities are unlikely to have been produced by factors that are specific to individual racial or ethnic groups. Instead, the reason appears to arise from the more general tendency of low-income households—of either race—to engage in little savings behavior. Because

Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×

there are more Black and Hispanic than White households in the low-income group, racial and ethnic differences in household wealth will be large.

ACKNOWLEDGMENTS

I thank David Rumpel of RAND and Joseph Lupton of the University of Michigan for expert programming assistance. Funds were provided by a grant from NICHD. Useful comments were made by Gerald Jaynes and an anonymous referee.

REFERENCES

Borjas, G. 1985 Assimilation, changes in cohort quality, and the earnings of immigrants. Journal of Labor Economics 3(4):35–52.

Browning, M, and A.Lusardi 1996 Household savings: Micro theories and micro facts. Journal of Economic Literature XXXIV(4):1797–1855.


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Donahue, J., and J.Heckman 1991 Continuous vs. episodic change: The impact of affirmative action and civil rights policy on the economic status of Blacks. Journal of Economic Literature 29(4):1603– 1644.


Gale, W., and J.Scholz 1994 Inter-generational transfers and the accumulation of wealth. Journal of Economic Perspectives 8(4):145–160.


Heckman, J., and B.Payner 1989 Determining the impact of federal antidiscrimination policy on the economic status of Blacks: A study of South Carolina. American Economic Review 79:138–177.

Holzer, H., and D.Neumark 1999 Assessing affirmative action. Unpublished paper.


Jasso, G., M.Rosenzweig, and J.Smith 2000 The changing skills of new immigrants, recent trends and their determinants. Pp. 185–225 in Issues in the Economics of Immigration. Chicago: University of Chicago Press.

Juhn, C, K.Murphy, and P.Brooks 1991 Accounting for the slowdown in Black-White wage convergence. Pp. 107–143 in Workers and their Wages: Changing Patterns in the United States, M.Kosters, ed. American Enterprise Institute Press.

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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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National Center for Education Statistics: Education Testing Service 1991 Trends in Academic Progress.


Passel, J. 1999 Undocumented immigration to the United States: Numbers, trends, and characteristics. In Illegal Immigration in America, D.Haines and K.Rosenblum, eds. Greenwood Publishing.


Smith J. 1993 Affirmative action and the racial wage gap. American Economic Review 83(2):79–84.

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1999 Progress across the generations. Unpublished paper.

Smith, J., and B.Edmonston 1997 The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington, D.C.: National Academy Press.

Smith, J., and M.Ward 1989 Women in the labor market and the family. Journal of Economic Perspectives 3(1):9– 24.

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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
×
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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Suggested Citation:"4. Race and Ethnicity in the Labor Market: Trends Over the Short and Long Term." National Research Council. 2001. America Becoming: Racial Trends and Their Consequences: Volume II. Washington, DC: The National Academies Press. doi: 10.17226/9719.
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The 20th Century has been marked by enormous change in terms of how we define race. In large part, we have thrown out the antiquated notions of the 1800s, giving way to a more realistic, sociocultural view of the world. The United States is, perhaps more than any other industrialized country, distinguished by the size and diversity of its racial and ethnic minority populations. Current trends promise that these features will endure. Fifty years from now, there will most likely be no single majority group in the United States. How will we fare as a nation when race-based issues such as immigration, job opportunities, and affirmative action are already so contentious today?

In America Becoming, leading scholars and commentators explore past and current trends among African Americans, Hispanics, Asian Americans, and Native Americans in the context of a white majority. This volume presents the most up-to-date findings and analysis on racial and social dynamics, with recommendations for ongoing research. It examines compelling issues in the field of race relations, including:

  • Race and ethnicity in criminal justice.
  • Demographic and social trends for Hispanics, Asian Americans, and Native Americans.
  • Trends in minority-owned businesses.
  • Wealth, welfare, and racial stratification.
  • Residential segregation and the meaning of "neighborhood."
  • Disparities in educational test scores among races and ethnicities.
  • Health and development for minority children, adolescents, and adults.
  • Race and ethnicity in the labor market, including the role of minorities in America's military.
  • Immigration and the dynamics of race and ethnicity.
  • The changing meaning of race.
  • Changing racial attitudes.

This collection of papers, compiled and edited by distinguished leaders in the behavioral and social sciences, represents the most current literature in the field. Volume 1 covers demographic trends, immigration, racial attitudes, and the geography of opportunity. Volume 2 deals with the criminal justice system, the labor market, welfare, and health trends, Both books will be of great interest to educators, scholars, researchers, students, social scientists, and policymakers.

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