Paper Cycles of wage discrimination

Cycles of Wage Discrimination Using CPS data from 1979-2009 we examine how cyclical downturns and industry-specific demand shocks affect wage differentials between white non-Hispanic males and women, Hispanics and African-Americans. Women’s and Hispanics’ relative earnings are harmed by negative shocks, while the earnings disadvantage of African-Americans may drop with negative shocks. Negative shocks also appear to increase the earnings disadvantage of badlooking workers. A theory of job search suggests two opposite-signed mechanisms that affect these wage differentials. It suggests greater absolute effects among job-movers, which is verified using the longitudinal component of the CPS. NON-TECHNICAL SUMMARY This study considers how the disadvantages faced by women, minority groups and others change over the business cycle. Examining the U.S. from 1979-2009, it shows that women’s and Hispanics’ wages are relatively lower than white males’ wages in bad times than in good times; but African-Americans do relatively better in bad times. The reason for the different responses to unemployment may be that there are two opposite effects on these measures of discrimination. Employers have a greater ability to indulge their desires to discriminate when unemployment is higher; but in bad times indulging those desires creates a greater risk of bankruptcy, because the employer’s profit situation is more precarious. Examining differences between job-stayers and job-movers provides some support for this explanation. JEL Classification: E29, J71