Government Participation in the Local Economy and Race- and Sex-Based Earnings Inequality

Recent studies of the effects of the structure of local labor markets on individual earnings have failed to consider how earnings are affected by government participation in local labor and product markets. This study merges SMSA-specific data (including measures of government participation in the local economy) into the Panel Study of Income Dynamics and regresses individual (log) earnings within race and sex groups on human capital, structural, and local labor market variables. I find that black women have higher earnings in metropolitan areas with greater government employment. Both black men and women receive higher earnings in areas where a large proportion of industrial output is consumed by the public sector. The earnings of white men are mainly predicted by human capital variables, while white women's earnings are most strongly affected by total hours worked.