Differences in Labor Force Attachment across Race Groups

Table 1 Sample Means 1982– 98 Panel Black Mexican White Log hourly wage 2.208 2.332 2.483 0.633 0.594 0.584 Age 28.859 28.946 28.706 3.931 3.970 3.964 Potential experience 10.548 10.935 9.792 4.205 4.222 4.309 Unrestricted actual experience 8.599 9.608 9.769 4.080 4.150 4.202 Restricted actual experience 7.586 8.413 8.138 4.005 4.135 4.226 Unrestricted out of the labor force 4.580 3.646 3.253 2.601 2.308 2.220 Restricted out of the labor force 2.794 2.226 1.608 2.510 2.148 1.904 Years of education 12.311 12.011 12.914 2.027 2.022 2.442 Married 0.338 0.535 0.561 0.473 0.499 0.496 Number of children 1.207 1.332 0.881 1.272 1.358 1.066 Person-year observations 8,070 2,363 14,106 Person observations 1,037 275 1,909 Note: Averaged over i and t. All experience and nonworking time variables are reported in years. Standard deviations in parentheses. unrestricted actual experience. Not surprisingly, measured actual experience accumula- tions are lower using restricted actual experience. Average actual experience falls by about one year for black and Mexican men and 1.6 years for white men. The bigger average drop across experience measures for white men occurs because more white men go to college. Estimates of time spent out of the labor force similarly differ across unrestricted and restricted deŽnitions. While average time spent out of the labor force is highest for blacks and lowest for whites under both deŽnitions, the drop between unrestricted and restricted deŽnitions is slightly higher for blacks.

III. Differences in Labor Force Attachment across Race Groups

There is substantial evidence that unemployment and out-of-the- labor-force spells constitute a signiŽcant fraction of time for many minority men. For example, D’Amico and Maxwell 1994 Žnd that black youth work substantially less than white youth during the transition period from school to the labor market. Moore 1992 Žnds that black workers who are displaced from a job take signiŽcantly longer to Žnd new employment than do white workers. For example, 45.7 percent of displaced black male workers took more that a year to Žnd a new job compared to only 24.7 percent of white men in 1986. DeFreitas 1986 similarly Žnds that minority unemployment rates are higher than white unemployment rates and that the disparity is magniŽed during recessions. In particular, the Hispanic male unem- ployment rate exceeds that of white men in booms recessions by 2.8 4.5 percent- age points while the black unemployment rate is 8.4 10.9 percentage points higher in booms recessions compared to white men. In addition, Baldwin and Johnson 1996 Žnd that wage discrimination against black men reduced black male employ- ment by approximately 7 percentage points in 1984. Western and Pettit 2000 further point out that the black unemployment rate is understated because incarcerated indi- viduals are excluded. They Žnd that correcting for incarceration rates reduces the employment-population ratio for men aged 20–35 from 83.4 to 81.6 percent for white men and from 66.6 to 58.5 percent for black men in 1996. The racial differences in labor force attachment are most easily seen graphically. Figure 1 plots the mean time spent out of the labor force for black, Mexican, and white men by age. Panel A depicts unrestricted time spent out of the labor force and Panel B depicts restricted time spent out of the labor force. Under both speciŽcations, black men have accumulated more time out of the labor force at every age, with the divergence between white and black men growing with age. As we have seen with many variables, Mexican men fall between black and white men. For example, by age 30, the average black man has accumulated 4.9 3.0 years of unrestricted re- stricted time out of the labor force compared to 3.9 2.4 years for Mexican men and 3.4 1.6 years for white men. The importance of properly accounting for differences in labor force attachment when estimating the role of labor market behavior in account- ing for racial wage gaps is the focus of the remainder of the paper.

IV. Two-Stage Fixed Effects Analysis of the Racial Wage Gap