The Role of Premarket Factors in Black-White Wage Differences

Neal and Johnson found that two thirds of the 1990-1991 black-white wage gap was explained by race differences in cognitive test scores measured 11 years earlier, and test scores fully explained white-Latino wage differences.

“They find that two thirds of the black-white gap in wages in 1990 to 1991 can be explained by race differences in cognitive test scores measured 11 years earlier, and test scores fully explain wage differences between whites and Latinos.”

The significant evidence of discrimination found in field experiments contrasts sharply with recent survey research showing small racial differences in wages.

“The significant evidence of discrimination found in these studies contrasts sharply with recent survey research showing small racial differences in wages (Farkas and Vicknair 1996; Neal and Johnson 1996).”

Schooling in the high school years has moderate but positive effects on measures of cognition.

“Schooling in the high school years has moderate but positive effects on the measures of cognition, consistent with previous research by Hansen, Heckman and Mullen [2004], Neal and Johnson [1996], and Winship and Korenman [1997].”

Nearly all of the black-white wage gap can be attributed to differences in premarket factors such as test scores.

“Neal and Johnson (1996) show that nearly all of the black-white wage gap can be attributed to differences in “premarket” factors such as test scores”

In past research a substantial gap has persisted, regardless of the covariates included.

“The fact that the Black-White test score gap essentially disappears with the inclusion of sufficient controls in Table 2 is a very striking result, given that in past research a substantial gap has persisted, regardless of the covariates included.”

Hernstein and Murray (1994) reduce the gap by one-third, Neal and Johnson (1996) reduce the gap by sixty percent, and Phillips et al. (1998) reduce the black-white gap by two thirds.

“For example, Hernstein and Murray (1994) reduce the gap by one-third, Neal and Johnson (1996) reduce the gap by sixty percent, and Phillips et. al., (1998) reduce the black-white gap by two thirds.”

Neal and Johnson (1996) and O'Neill (1990) find that most of the observed Black-White wage differentials among adults disappears once lower eighth grade test scores among Blacks are taken into account.

“Neal and Johnson (1996) and O'Neill (1990) find that most of the observed Black-White wage differentials among adults disappears once lower eighth grade test scores among Blacks are taken into account.”

The finding that black-white racial gaps in individual income are substantially larger for men than women is consistent with prior literature showing that black-white wage disparities are smaller for women than men in the cross-section.

“The finding that black-white racial gaps in individual income are substantially larger for men than women is consistent with prior literature showing that black-white wage disparities are smaller for women than men in the cross-section (Darity, Guilkey, and Winfrey 1996; Neal and Johnson 1996; Altonji and Blank 1999; Bayard et al. 1999; Blau 2012).”