A Structural Decomposition of Black-White Earnings Differentials

This research demonstrates the impact of labor market structure and segmentation on differentials in black and white earnings. This paper argues that there are two very different factors which create black-white earnings differences: (1) differences between blacks and whites within divisions of the labor market, and (2) differences between labor market divisions in earnings combined with the differential distribution of blacks and whites across labor market divisions. Use of a decomposition based on a regression standardization approach discloses that the second factor accounts for a minimum of 14% of the black-white earnings gap. This implies that eliminating all black-white differences within labor market divisions would still leave a significant earnings gap between blacks and whites due to the structure of the labor market.