Urzúa, Sergio. 2008. “Racial Labor Market Gaps: The Role of Abilities and Schooling Choices.” Journal of Human Resources 43(4): 919–971.
This paper studies the relationship between abilities, schooling choices, and black-white differentials in labor market outcomes. The analysis is based on a model of endogenous schooling choices. Agents’ schooling decisions are based on expected future earnings, family background, and unobserved abilities. Earnings are also determined by unobserved abilities. The analysis distinguishes unobserved abilities from observed test scores. The model is implemented using data from the NLSY79. The results indicate that, even after controlling for abilities, there exist significant racial labor market gaps. They also suggest that the standard practice of equating observed test scores may overcompensate for differentials in ability.
Sergio Urzúa is a professor of economics at Northwestern University, Department of Economics, 2001 Sheridan Road, Office 302, Evanston IL 60208; telephone: 847-491-8213; email: s-urzua@northwestern.edu. The author is indebted to James Heckman for his encouragement and guidance throughout this project. He acknowledges helpful discussions with Derek Neal, Glenn Loury, Robert Townsend, Lars Hansen, Chris Taber, Greg Duncan, Jora Stixrud, Paul LaFontaine, three anonymous referees, and the participants in workshops at the University of Chicago, Brown University, Northwestern University, the 2007 ASSA/AEA Meeting, and at the Third Chicago Workshop on Black-White Inequality. The usual disclaimer applies. Supplementary material: http://faculty.wcas.northwestern.edu/~ssu455/research/gapWebAppendix.pdf. The data used in this article can be obtained beginning May 2009 through April 2012 from Sergio Urzúa, Northwestern University, Department of Economics, 2001 Sheridan Road, Office 302, Evanston IL 60208; telephone: 847-491-8213; email: s-urzua@northwestern.edu.