Rev Black Polit Econ (2011) 38:243251

DOI 10.1007/s12114-011-9102-6

Explaining Regional Differences in Black Earnings

Discrimination among Full-time Working Men
Don Mar
Published online: 22 September 2011
# Springer Science+Business Media, LLC 2011

Abstract Using data from the 2000 Census 1% PUMS, this paper analyzes the
causes of regional differences in Black earnings discrimination. The methodology is
a two stage process used to generate and analyze a cross section of earnings
discrimination across cities. In the first stage, a city measure of discrimination is
constructed using the Oaxaca decomposition method. The second stage then utilizes
these estimated measures of discrimination as a dependent variable in OLS models
to test various discrimination theories. While the second stage offers some evidence
that increases in the size of both the Black labor force and immigrant labor force are
positively related to greater discrimination, increasing overall income inequality is
found to robustly increase Black earnings discrimination.
Keywords Black-White discrimination

Introduction
The narrowing or widening of earnings differences between ethnic and racial groups has
historically been a key indicator of social progress in American society. There is
considerable research on analyzing reasons for the differences in white and black
earnings. However, there has been little recent work on examining reasons for
differences in racial earnings discrimination. This paper investigates the causes of
regional differences in Black earnings discrimination by city in the United States. Data
for this paper comes from the 2000 Census Public Use Microdata 1% Sample (PUMS).
Regional differences in minority earnings discrimination have been a topic since
Gary Beckers original work in 1957. Becker (1971) argued that minorities face less
earnings discrimination in areas where they are a relatively small percentage of the
population compared to areas where they are a greater percentage of the population.
Assuming an equal percentage of employers discriminate across regions, differences
The term Black is used to describe African Americans as this is the historical term used in the literature.
All errors are mine.
D. Mar (*)
Department of Economics, San Francisco State University, 1600 Holloway, San Francisco, CA 94132,
USA
e-mail: dmar@sfsu.edu

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in the percentages of Black Americans in the regional labor markets lead to greater
Black-White earnings differentials as non-discriminatory firms face a greater supply
of African American workers which depress black wages. Many economists
studying Black earnings have noted the importance of regional differences in
earnings based on quality differences in education and occupations across regions in
explaining long term trends in Black-White earnings during the 1960s80s. (See, for
example, Smith and Welch 1977; Card and Kreuger 1992.)
Reich (1981) provided a radical interpretation of racial differences in regional
earnings based on class conflict. Reich argued that racial discrimination was utilized
by capitalists to keep workers divided. As a result, greater racial discrimination would
historically be associated with greater exploitation of workers. Here, the causal effect
is greater discrimination leads to greater inequality. Empirically, he did find that greater
Black-White earnings differences across SMSAs (Standard Metropolitan Statistical
Areas) was associated with greater earnings inequality for all workers.
In their widely cited paper on Black-White earnings differences, Juhn et al. (1991) find
that long term trends in Black-White earnings differences are strongly related to
nationwide changes in earnings inequality. Their method decomposes the earnings gap
over time into 4 components: changes in measured characteristics, changes in the prices
of measured characteristics, changes in unobserved characteristics, and changes in the
prices of unobserved characteristics. This method allows them to examine how much the
residual or unexplained black-white wage gap is due to changes in the overall distribution
of earnings and or changes in changes in the black positions of income distribution.
Unlike Reich, who interprets differences in income distribution as an indicator of class
struggle, Juhn et al sought to explain the reversal of Black-White earnings convergence
from the mid 1970s onwards in terms of changes in returns to education and skills in the
labor market which are captured by the change in earnings distribution over time versus
institutional changes such as affirmative action policies. They use Current Population
Survey data from 1964 through 1988 to first estimate a differential and then to explain
the causes behind the change in the Black-white earnings differentials.
Couch and Daly (2002) update the Juhn et al results with data for the 1990s. They
find that the black-white earnings differential to be narrowing in the 1990s as opposed
to the stagnating in the 1980s. Again, using the same methodology as Juhn et al they
find that changes in unobserved characteristics or residual earnings differences to
continue to contribute to changes in the Black-White earnings differential.
Rogers (1997) employs a variation of the Juhn et al decomposition to examine blackwhite earnings differences for men in the central city versus the suburbs. He finds that
increasing labor market discrimination is more likely to have contributed to changes in the
black-white earnings gap from 1979 to 1989 within the two metropolitan areas as opposed
to changes in overall earnings inequality or unobserved productivity characteristics.
Hirsch and Schumacher (1992) examine the effects of differences in the racial
composition of jobs across regions on wage earnings across all workers. They use
1983 individual level CPS data including a racial density variable computed as the
ratio of the number of Black workers to the total of Black and White workers in a
region employed in an industry and occupational group from the 1980 Census. They
find the density variable to be significant in lowering wage earnings for most
workers. However, the density variable was not significantly related to Black-White
earnings differences.

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Carlstrom and Rollow (1998) find that regional labor market differences continue to
be important in explaining Black-White earnings differences. Using 1993 CPS (Current
Population Survey) data, they find that much of the differences in earnings outside the
Southern US can be attributed to differences in observable productivity related
characteristics. However, within the South, differences in observable productivity
related characteristics still leave considerable differences in earnings unexplained.
More recently, economists have studied the impact of immigration on the labor market
outcomes of native-born Blacks in the US by examining the effects of city differences in
the percentage of immigrants on wages and employment. There is an ongoing debate on
the magnitude of the effects of immigrants on native-born blacks. Card (2001) finds that
immigrants have relatively small effects on wages and employment. Borjas et al. (2006)
find a relatively large effect, estimating that a 10% increase in immigrants lowers wages
of Black workers by 4%. Ottaviano and Peri (2008) find relatively small effects of
immigrants on Black workers when immigrant labor is not easily substitutable for
native-born workers. However, none of these studies have explicitly examined the
effects of immigration on black earnings discrimination.
Even with this rich background, there has been relatively little recent examination of
explicitly examining regional differences in earnings discrimination. This papers primary
objective is to examine the role labor market differences by city affect racial earnings
discrimination as opposed to explaining the entire black-white earnings gap. The
methodology employed in this paper is a two step process. It begins by calculating the
difference in black earnings by city based solely on observed characteristics as a measure
of discrimination. A city is operationally defined as an MSA or PMSACensus defined
Metropolitan Statistical Area and Primary Metropolitan Statistical Area) using the well
known Oaxaca decomposition method (Oaxaca 1973; Oaxaca and Ransom 1994).
Once these earnings differences have been estimated for each city, the differences
are used as dependent variables. The papers primary focus will be to explain these
city differences in earnings. Explanations suggested by the literature include: the
percentage of the city labor force that is Black, the degree of city income inequality,
the difference in industrial structure in each city, the size of city itself, and the
percentage of city labor force that is foreign born.

Data
Data for this analysis comes from the 2000 Census 1% PUMS data. The 1% PUMS allows
a large enough sample to estimate the dependent variables used in this study. To simplify
the analysis, the study is limited to the US-born, non-Hispanic Whites and Black men over
the age of 24 and under the age of 65. In addition, analysis is confined to full time workers
defined as working more than 30 h per week. Limiting the study to full time, US-born men
avoids traditional problems in estimating earnings of women, immigrants, and part time
workers due to self-selection and group heterogeneity issues. Only differences in wage and
salary earnings are analyzed. Non-Hispanic white and Black men are identified using the
self-identified census race category. Cities are defined using the Census MSA or PMSA as
the unit of analysis. Cities that were part of another MSA or PMSA and with less than 40
Black workers in the sample were excluded in order to identify separate labor markets and
provide robust estimates of the discrimination measure.

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Methodology
First, a fairly standard, Mincer (1974) type human capital earnings regression
(Murphy and Welch 1990) is estimated using Black and White observations for each
city. This first stage is employed to obtain a measure of earnings discrimination for
each city using the standard Oaxaca decomposition method. There is considerable
debate in the racial discrimination literature whether these unexplained differences in
earnings may be entirely attributed to discrimination. However, it is an often used
measure and its use here is as a relative as opposed to absolute measure. For
convenience, these coefficients will be referred to as earnings discrimination in
each city within this paper.
loghourly wage and salary earnings in city j x0 br;j

where: r,j is a vector of ordinary least squares (OLS) parameter estimates for
individual productivity related variables and personal characteristics for each city, r
denotes whether the individual is Black or White, and x is a matrix of personal
characteristics1 defined as:
 High School Graduate; Bachelors Degree; Graduate Degree; Married; Disabled;
Public; Potential Experience; Potential Experience2 ; Potential Experience3 ;
PotentialExperience4 ; Industry Dummies113 ; Occupational Dummies111
The use of industry and occupation controls in estimating earnings discrimination
may overestimate or underestimate the magnitude of discrimination. If there is
significant occupational crowding and/or industry discrimination against Black
workers, controls for these variables would understate the degree of discrimination.
However, estimates without the controls may underestimate discrimination due
preferences and occupations differences. As a result, city discrimination coefficients
are estimated with and without these controls with both results reported in the results
of the second stage analyses.

The model variables in the first stage are defined as follows. Hourly wage and salary earnings equals
annual wage and salary earnings in 1999 divided by number of weeks worked in 1999 and usual hours
worked per week. High School Graduate equals 1, if the individual completed high school but no college.
Bachelors Degree equals 1 if the individual completed a baccalaureate degree. Graduate Degree equals1 if
the individual completed a graduate degree. Married is a dummy variable equal to 1 for married
individuals. Disabled is a dummy variable equal to 1 if the individual reported a disability that affected
their work. Public is a dummy variable equal to 1 if the individual worked at a public agency. Potential
Experience is calculated by subtracting years of education plus 5 from an individuals age. Years of
education were assigned based on the mean of the years of education in each Census category. Potential
Experience2 equals years of potential experience squared. Potential Experience3 equals years of potential
experience cubed. Potential Experience4 equals years of potential experience raised to the 4th power. The
13 industry dummies are Construction, Manufacturing, Wholesale, Retail, Transportation-warehouseutilities, Information services, FIRE (Finance Insurance Real Estate), Professional services, Education and
human social services, Art-recreation-food services, Other services, Public administration, and US
Armed Forces with agriculture and mining the excluded category. The occupational dummies are
Managers, Business-financial occupations, other professional occupations, Arts occupations, Health
occupations, Sales and office occupations, Farm and fish workers, Construction, production-transportmaterials occupations, and Military. The excluded occupations are Service occupations.

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Finally, one of the major criticisms of this approach for measuring discrimination
has been that some of the variablespotential experience, simple education
dummiesinadequately capture individual productivity and quality differences,
and thus over estimates the amount of discrimination. On the other hand, the
discrimination literature also argues that discrimination may prevent equal access to
different qualities of education and experience which argues for this measure
underestimating the degree of earnings discrimination. Since it is not clear that in
this application that there is a systematic bias by city that would affect the second
stage results, no adjustments are made to the first stage results.
An Oaxaca type discrimination coefficient is calculated for each city by taking the
difference in Black actual and potential log earnings in the standard fashion. The
measure of discrimination in each city, dj, is calculated as:


dj X b;j0 bw;j  bb;j
where: Xb is the vector of mean values for Black characteristics in city j; w,j is the
vector of white log earnings coefficients for city j; and b,j is the vector of Black log
earnings coefficients in city j. In the Juhn et al methodology, this is frequently termed
the price component of the earnings gap.
The second stage is to explain differences in earnings discrimination by city. The
following OLS model is estimated:
dj bo b1 PBlackj b2 VarLnPIncj b3 PManuf j b4 LnCitySizej
b5 Southj b6 PLFForBornj "j

where: j represents each city and dj are the estimates of earnings discrimination in
each city from the hourly wage and salary earnings regressions in stage 1. PBlack is
the black proportion of the population in each city. VarLnPInc is the variance of the
log of total personal income in each city. PManuf is the portion employed in
manufacturing by place of residence for each city. LnCitySize is the log of each
cities population. South is a dummy variable for cities in the Southern US.
PLFForBorn is the portion of the labor force born outside the US. All the right hand
side variables were calculated using the 1% PUMS and matched to each city.
Since the djs are expected to be positive, the 1 parameter is expected to be
positive if the supply of Blacks in the labor market is positively related to earnings
discrimination as suggested by Becker. 2 is expected to be positive if greater
income inequality in a city is positively related to earnings discrimination as
discussed by Reich (ibid). 3 is expected to be negative if cities with a greater
percentage of employment in manufacturing reduce earnings discrimination.
Bladgett and Williams (1994) found that the decline in high wage manufacturing
jobs adversely affected the labor market outcomes of Black men during the 1980s.
4 is expected to be negative if larger cities reduce the degree of earnings
discrimination. City size serves as a crude proxy for the competitiveness of the labor
market. Greater labor market competitiveness should reduce the impact of
discrimination. 5 is expected to be positive if discrimination is greater in the South
as found by Carlstrom and Rollow. Southern discrimination may be greater due to a
number of factors such as historical persistence, different industrial structure, and lax

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enforcement of EEO (Equal Employment Opportunity) laws. 6 is expected to be

positive if immigration leads to increasing discrimination against Blacks.

Results
For the sake of brevity, the results of first stage of analysis are not reported in detail
other than to offer some validation for the methodology. In general, the productivity
related and individual characteristic variables are highly significant with the
expected signs on the parameters. Most of the industry and occupation variables
are significant with the exception of 2 of the industry variables. Due to the minimum
of 40 Black observations per city, 83 city discrimination coefficients were calculated
for the stage 2.
To give some idea of the results from the first stage, Table 1 shows the calculated
discrimination coefficients by the degree of discrimination for the 10 cities with the
largest coefficients.
Two observations are worth noting from these tables. One, it is not readily
apparent why these cities have large discrimination coefficients. Two, adding
controls for income and occupation generally reduces the magnitude of the
discrimination measure, which is expected from the racial discrimination literature.
Three, the income and occupational controls do not have a great effect on the relative
discrimination ranking.
The results of the second stage are shown in Table 2. Descriptive statistics for the
variables are given in Table 3. Results are shown using both estimates of city
discrimination. Model 1 uses the city-Black parameters estimated without the
industry and occupation controls, whereas Model 2 uses the parameters estimated
Table 1 10 MSA/PMSAs with greatest discrimination based on the city earnings regressions with and
without industry and occupation controls
City (MSA/PMSA)

Estimated earnings discrimination without Estimated earnings discrimination with

industry & occupation controls
industry & occupational controls

Jersey City, NJ

0.37008

0.37172

San Jose, CA

0.32831

0.28075

Sacramento, CA

0.29195

0.25046

San Francisco, CA

0.28496

0.24263

Omaha, NE

0.26932

Stockton-Lodi,CA

0.28250

Orange County, CA
Dallas, TX

0.22549
0.26702

0.21079

0.26107

0.20461

New York,NY

0.25275

0.20295

Houston, TX

0.25230

Bergen Passaic, NJ

0.25161

Omaha,NE
Jackson, MS

0.20915

Authors calculation from 2000 Census Public Use Micro Sample.

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Table 2 Regression results on estimated city earnings discrimination

Variable

Model 1

Model 2

Proportion Black

0.124854 (1.41)

0.12902 (1.63)

Variance in Personal Income

0.168197** (2.14)

0.137866 (1.56)

Proportion Manufacturing
Log of Population
South
Percent of Labor Force foreign born
Constant

0.136031 (0.54)

0.03156 (0.13)

0.002108 (0.16)

0.004924 (0.35)

0.00800 (0.39)

0.006160 (0.29)

0.164884 (1.34)

0.166649 (1.03)

0.133461 (0.68)

0.040702 (0.19)

R2

0.2045

3.53

number of observations

0.2028
4.15

83

83

Model 1 uses city discrimination coefficients without industry and occupation controls as the dependent
variable. Model 2 uses city discrimination coefficients with industry and occupation controls as the
dependent variable. All models use small sample robust standard errors to calculate the t-statistics in order
to account for heteroscedasticity. T-statistics are shown in parentheses; * denotes 10% level of
significance; ** denotes 5% level of significance.

with the controls. Due to likely differences in errors based on city size,
heteroscedasticity is a likely problem. Statistical testing indicates the presence of
heteroscedasticity. As a result, standard errors are estimated using small sample
robust standard errors.
The results of both models are relatively similar. The proportion Black parameters
have the expected signs. An increase in the proportion of the Black population in the
city is associated with an increase in earnings discrimination. The parameter
estimates for the proportion Black variable are not statistically significant, although
it is close to the 10% level for the model which include the industry and
occupational controls. The parameter estimates for the variance in the log of total
personal income have the expected sign and are statistically significant at the 5%
Table 3 Means and standard errors of estimated city earnings discrimination variables
Variable

Mean

Stamdard Deviation

Estimated City Earnings Discrimination-no

industry and occupational controls

0.16328

0.073605

Estimated City Earnings Discrimination-with

industry and occupational controls

0.12853

0.072452

Proportion Black

0.16267

0.10938

Variance in log Personal Income

1.43979

0.10993

Proportion Manufacturing

0.12313

0.044364

13.98076

0.78491

South

0.36145

0.48334

Percent of Labor Force foreign born

0.14819

Log of Population

number of observations

83

.122625
83

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level in the model without the industry and occupation controls and close to 10%
with the controls. The parameter estimates for proportion of the labor force in
manufacturing have the expected negative signs, but are not significant in either
model. The log of population parameters also have the correct sign in but are not
statistically significant in both models. The parameters estimates for South are all
negative but are not statistically significant. The parameter estimates for the
percentage of the labor force that is foreign born in each city are positive in both
models but not statistically significant. Finally, the variables in the model with the
industry and occupational controls generally have the same signs and parameter
magnitudes as the model without the controls, but with less statistical significance.
The models were estimated in other ways as a test of the robustness of the results.
Reichs model of discrimination often has difficulty in determining the causal
direction of discrimination and inequality. It is debatable whether greater inequality
leads to greater discrimination versus greater discrimination leading to inequality.
Instrumental variable models for both variables using an inequality instrument
created from the other exogenous variables in stage 2 yield similar results to the OLS
results. There is moderate multicollinearity, with the South variable correlated to
both proportion of the labor force employed in manufacturing and proportion of the
labor force that is Black (r=-0.4213 and r=0.5396, respectively). The city size
variable is also correlated with the proportion of the labor force born outside the US
(r=0.4568). Models estimated without the South variable do not change the result.
However, dropping the city size variable did increase the significance of the foreignborn labor force variable to the 10% level of significance in the model without
industry and occupational controls. Finally, instead of using 40 observations as the
cutoff threshold for inclusion in the second stage, a second stage with 60
observations gives near identical results with none of the variables are significant.
A larger sample size would certainly be useful in estimating these models and a
direction for future research.
These results show some support for Beckers explanation of regional differences in
earnings discrimination. The Black proportion in the labor force parameters have the
correct signs but were of only marginal statistical significance. Across cities, the smaller
manufacturing employment marginally affects Black earnings relative to Whites. The
log of population measure is an admittedly crude measure for the degree of competition
in regional labor markets so this variable may not have captured the true extent of labor
market competitiveness, but size alone does not seem to affect Black earnings
discrimination. The South variable does not explain much of the differences in Black
discrimination. The proportion of the labor force that is foreign-born is significant in
models without the city size variable, but not in the general models.
Inequality does increase discrimination against Blacks. There are a number of
possible explanations. As the distribution of earnings widens, African Americans may
encounter greater occupational crowding, experience educational quality differences,
and larger residential location problems. Cities with larger proportions of immigrants in
the labor force may also exhibit greater discrimination against Blacks. Various
explanations are possible. Reich has argued that immigrants and other racial minorities
are pitted against one another to allow greater exploitation. Immigrant workers may also
place Black workers lower on the queue for better paying jobs. Immigrant businesses
may increase employment and earnings discrimination against Black workers. However,

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it is not clear whether immigration is causal in this relationship due to the correlation of
the immigrant labor force variable to other city characteristics. The literature also gives
mixed results on the severity of immigrant workers on Black wages and employment.

Conclusion
The intent of this paper is to explain the differences in earnings discrimination across
cities. Some support is found for Becker type explanations of earnings discrimination.
Immigration may also affect discrimination although these results although this result is
on the margin of significance. Increasing income inequality is found to be positively
related to discrimination. Although income inequality declined somewhat during the
robust economy of the late 1990s, the long term trend of increasing US income
inequality has been re-established portending increasing earnings discrimination against
African Americans in the future.

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