Black-white wage differentials

Duration and probability unemployment effects in a multiple of sample selection bias model

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Abstract

The extent to which probability and duration of unemployment affect the black-white wage differentials is examined in this paper. The paper simultaneously incorporates in the wage equation the multiple sample selection bias that occurs as a result of individuals' propensity to be in the labor force, and the firm's hiring decisions. The results reveal a substantial contribution of the duration of unemployment variable to the black-white wage differential, but a small portion of the differential is explained by the probability of unemployment. The results also indicate a sizeable difference between the contribution of the duration of unemployment variable to the male's wage differentials (26%) and to the female's (35%). The study finds that an individual's labor force decision as well as a firm's hiring decision are important in the wage determination process and that failure to account for the sample selectivity bias due to these two decisions will result in either underestimating or overestimating the wage differentials between black and white workers. At the macro level, the results seem to suggest that promotion of racial wage equality should be associated with policies that will minimize blacks' incidence of unemployment and duration of unemployment spells.

Original languageEnglish (US)
Pages (from-to)559-584
Number of pages26
JournalInternational Review of Applied Economics
Volume25
Issue number5
DOIs
StatePublished - Sep 1 2011

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Sample selection bias
Duration of unemployment
Unemployment
Wage differentials
Labor force
Hiring decisions
Selectivity bias
Wages
Equality
Propensity
Workers
Wage determination
Wage equation

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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abstract = "The extent to which probability and duration of unemployment affect the black-white wage differentials is examined in this paper. The paper simultaneously incorporates in the wage equation the multiple sample selection bias that occurs as a result of individuals' propensity to be in the labor force, and the firm's hiring decisions. The results reveal a substantial contribution of the duration of unemployment variable to the black-white wage differential, but a small portion of the differential is explained by the probability of unemployment. The results also indicate a sizeable difference between the contribution of the duration of unemployment variable to the male's wage differentials (26{\%}) and to the female's (35{\%}). The study finds that an individual's labor force decision as well as a firm's hiring decision are important in the wage determination process and that failure to account for the sample selectivity bias due to these two decisions will result in either underestimating or overestimating the wage differentials between black and white workers. At the macro level, the results seem to suggest that promotion of racial wage equality should be associated with policies that will minimize blacks' incidence of unemployment and duration of unemployment spells.",
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