Incorporating the Causes of Occupational Differences in Studies of Racial Wage Differentials

This study provides a basic framework for incorporating the causes of occupational differences into analyses of racial wage differentials. Separating the influences of personal characteristics, occupational choice, and hiring discrimination on occupational attainment provides measures of the contributions of each to the racial pay gap. The paper also considers the potential for bias in the wage-equation estimates arising from self selection into occupations. There are two general findings. First, correcting for self-selection increases the importance of occupational distribution in explaining racial wage differentials. Second, a proper accounting of the causes of these occupational differences yields discrimination measures that are higher than those that arise when occupational dummy variables are included in the wage equations and all the difference in occupational distribution is treated as nondiscriminatory.