What Do Wage Differentials Tell Us about Labor Market Discrimination?

June E. O'Neill, Dave M. O'Neill

NBER Working Paper No. 11240
Issued in April 2005
NBER Program(s):Labor Studies

We examine the extent to which non-discriminatory factors can explain observed wage gaps between racial and ethnic minorities and whites, and between women and men. In general we find that differences in productivity-related factors account for most of the between group wage differences in the year 2000. Determinants of wage gaps differ by group. Differences in schooling and in skills developed in the home and in school, as measured by test scores, are of central importance in explaining black/white and Hispanic/white wage gaps among both women and men. Immigrant assimilation is an additional factor for Asians and workers from Central and South America. The sources of the gender gap are quite different, however. Gender differences in schooling and cognitive skills as measured by the AFQT are quite small and explain little of the pay gap. Instead the gender gap largely stems from choices made by women and men concerning the amount of time and energy devoted to a career, as reflected in years of work experience, utilization of part-time work, and other workplace and job characteristics.

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Document Object Identifier (DOI): 10.3386/w11240

Published: O'Neill, June, and Dave O'Neill. 2006 "What Do Wage Differentials Tell Us about Labor Market Discrimination?" In The Economics of Immigration and Social Policy, edited by Soloman Polachek, Carmel Chiswich, and Hillel Rapoport. Research in Labor Economics 24:293-357.

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