Gunnar Myrdal, Nobel Laureate , 1974

1
Gunnar Myrdal, Nobel Laureate , 1974

• The economic situation of the Negroes in America
  is pathological. Except for a small minority
  enjoying upper or middle class status, the masses
  of American Negroes in the rural South and in the
  segregated slum quarters in Southern cities is
  destitute. They own little property even their
  household goods are mostly inadequate and
  dilapidated. Their incomes are not only low but
  irregular. They thus live from day to day and
  have scant security for the future.
• An American Dilemma, 1944

2

• In 1940, 75 of Blacks in the U.S. were
  destitute.
• Ratio of WB /WW 0.43
• Blacks were particularly hurt by the Depression

3
In 1944 when Myrdal was writing, relative wages
for Blacks had stagnated for 20 years
Lang, Kevin. 2007. Poverty and Discrimination .
Princeton University Press.
4
Male Income Distributions in 1980 dollars 1940
and 1980 In 1940, 8 ob Black incomes were above
the White median In 1980, 29 of Black incomes
were abouve the White median Smith, James, and
Finis Welch. 1986. Closing the Gap Forty Years
of Economic Progress for Blacks. Rand
Corporation Monograph.
5
Cohort analysis are gains across all age groups
or cohort specific?
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
6
Gains for younger cohorts that persist as cohort
ages
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
7

• Likely sources of changing skill endowments and
  or returns across and within cohorts
• Schooling
• School quality
• Migration South to North
• Migration rural to urban
• Labor Force Participation
• Anti discrimination law

8
Relative schooling gains especially after 1910
Smith, James, and Finis Welch. 1986. Closing the
Gap Forty Years of Economic Progress for
Blacks. Rand Corporation Monograph.
9
Smith, James, and Finis Welch. 1986. Closing the
Gap Forty Years of Economic Progress for
Blacks. Rand Corporation Monograph.
10
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564. Returns
to schooling rising for blacks and mixed for
whites Returns persist as cohort ages
11
Black minus White returns, by experience and work
cohort
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
12
Some of the gains occur in the 1970s after the
schooling has ended, especially for the youngest
cohorts
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
13
Rising relative returns coincides with rising
quality of black relative to white schools
But most gains predate 1950s
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
14
Rising relative returns coincides with rising
quality of black relative to white schools
But most gains predate 1950s
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
15
Rising relative returns coincides with rising
quality of black relative to white schools
But most gains predate 1950s
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
16
Relative to Whites, Blacks Moving North and Urban
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
17
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
Blacks disproportionately disadvantaged in the
South, but disadvantage shrinking for younger
cohorts. Note also the sudden gains in the 1970s
for all cohorts
18
To evaluate long-term changes in relative pay, we
need another temporal decomposition

• Suppose we want to examine the relative
  importance of changes in characteristics versus
  changes in returns to characteristics on the pay
  gap.

19

Error terms will be zero on average, so drop them
Take differences, and add and subtract some
nuisance terms
20

Main Effect

Gender Effect

Year Effect
Gender Year interaction
21
Decomposing the sources of narrowing male female
wage differentials
Main effect How changes in relative skill
endowments affect the gap Gender Effect How
changes in F skill endowments matter, given
returns gap Year Effect How change in returns
matter, given endowment gap Gender Year
interaction How relative change in returns
between M and F affects the gap

Main Effect

Gender Effect

Year Effect
Gender Year interaction
22
If wage differences were measured the opposite
way as (lnWf lnWm ), the decomposition would be


Main Effect
Gender Effect
Year Effect
Gender Year interaction
Main effect Shrinking relative skill endowments
gap would raise Black earnings versus
Whites Race Effect If returns favor whites,
rising skill levels overall would lower Black
earnings versus whites Year Effect If returns
are rising on attributes for which Blacks have an
advantage, then Black earnings would rise
relative to whites Race-Year interaction
Shrinking gap in returns would raise Black
earnings versus Whites
23
Change from 1940-1980
Main effect Shrinking relative skill endowments
gap Race Effect Rising skill levels overall
raise White earnings more than Blacks because of
higher White returns to schooling Year Effect
Rising returns (shrinking penalty) to living in
the South gives slight benefit to Black
earnings Race-Year interaction Increasing
returns to schooling for Blacks relative to
Whites raises Black earnings Schooling Total
The summed effect of Main and Race-Year effects
from increased schooling alone
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
24
Smith and Welch Schooling is almost
everything Increased years of schooling
33 Increased returns to schooling
11-38 Migration 11-19 Not much change in the
1980s in Black-White wage differences, so this
takes us to the 1990s
25
Caveat 1 Selection changes in the fraction of
blacks and whites in the labor market may affect
observed wages. Impact negligible until the 1970s
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
26
Caveat 1 Selection changes in the fraction of
blacks and whites in the labor market may affect
observed wages
Lang, Kevin. 2007. Poverty and Discrimination .
Princeton University Press.
27
Caveat 1 Selection changes in the fraction of
blacks and whites in the labor market may affect
observed wages
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
28
Caveat 1 Selection changes in the fraction of
blacks and whites in the labor market may affect
observed wages
Lang, Kevin. 2007. Poverty and Discrimination .
Princeton University Press.
29
Caveat 1 Selection changes in the fraction of
blacks and whites in the labor market may affect
observed wages
Smith, James, and Finis Welch. 1989. Black
Economic Progress After Myrdal. Journal of
Economic Literature. 27 (June)519-564.
30

• Observed Black-White Earnings ratios and
  alternative corrections for selection
• Assume all missing workers would earn below the
  median for their race
• Assume missing would earn the median for the same
  race, age and education
• Assume missing would earn the lowest wage for the
  same race, age and education

1940 1950 1960 1970 1980
1990
1) 2) 3)
Cited in Lang, Kevin. 2007. Poverty and
Discrimination . Princeton University Press.
31
Caveat 2 Improvement in the 1960s and the
1970s may be due to Anti discrimination policies
By 1960s, school gains are done. Remaining gains
in the 1960s are entirely in the South, not due
to migration or school improvements. Gains occur
for all ages, not just young.
Nonsouth
South
U.S.
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
32
Blacks gain voting power rapidly in the South in
the 1960s
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
33
EEOC filings expand rapidly between 1966-1979 and
then slow
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
34
EEOC filings expand rapidly in the South as well
Donohue, John J, III Heckman, James, 1991.
"Continuous versus Episodic Change The Impact of
Civil Rights Policy on the Economic Status of
Blacks," Journal of Economic Literature,
29(December)1603-43.
35
Donohue and Heckman argue that the gains in the
1960s and 1970s are attributable to EEOC
enforcement
36
What about women?
37
Source Blau, Ferber, Winkler, 2006. The
Economics of Women, Men and Work, 5th edition
38
Source Blau, Ferber, Winkler, 2006. The
Economics of Women, Men and Work, 5th edition
39

• Younger cohorts of women are gaining, but some of
  the gains diminish as the cohort ages