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"With this faith we will be able to hew out of the mountain of despair a stone of hope." From the I Have a Dream speech, served as inspiration for the The King National Memorial. (PHOTO: PUBLIC DOMAIN)

Seeking a Better Measure of Inequality, 50 Years After ‘I Have a Dream’

• August 28, 2013 • 12:14 PM

"With this faith we will be able to hew out of the mountain of despair a stone of hope." From the I Have a Dream speech, served as inspiration for the The King National Memorial. (PHOTO: PUBLIC DOMAIN)

Severe inequities remain between whites and non-whites in American economic life. But it isn’t clear that employers are as much to blame as one might expect.

President Obama is set to give a speech today at the “Let Freedom Ring” ceremony commemorating the 50th anniversary of the March on Washington for Jobs and Freedom and Martin Luther King’s “I Have a Dream Speech.” Though King’s speech helped catalyze a major expansion of political freedom, observers expect Obama to use the occasion to talk about our need to expand economic freedom. Hence the flood of reports today re-examining longstanding black-white disparities in income, wealth, and unemployment; graduation rates; and rates of marriage and out-of-wedlock birth.

But who’s to blame for the still-existing gaps across most of these metrics? To find out, a new working paper from the University of Minnesota digs deeper into the distribution of an often-overlooked component of total income and wealth: benefits. That means things like health insurance, pensions, and paid vacation, which represent a huge chunk of total compensation (roughly 30 percent of employer’s costs for compensating employees, according to the Bureau of Labor Statistics) and greatly influence overall inequality.

Black workers that manage to get a job appear to earn at comparable rates, controlling for education levels—but regardless of education, they appear to have a harder time getting a job, due to their race.

The paper confirms that black men are significantly less likely than white men to receive benefits, similar to the income gap between the two groups. But author Joseph Ritter, an economist at Minnesota, also sought to clarify whether black and white economic inequality was the result of discrimination by employers in the labor market, or by pre-market forces, like the education system that produces the workers (and their parents, consequentially). Taking into account benefits, it looks like pre-market forces are more to blame than discriminatory employers.

To reach that conclusion, Ritter looked at three sets of data: Two waves of responses on the U.S. Department of Labor’s National Longitudinal Survey of Youth, and the results of an Armed Forces Qualification Test administered to the same NLSY respondents. Every few years since 1979, the NLSY has surveyed over 12,000 respondents born in the 1950s and ‘60s about their life and career experiences; Ritter’s paper considered the 1994 and 2004 surveys, when participants were their 30s and 40s. The survey included questions about the kind of benefits they received, and gathered basic demographic details like race and gender. To distinguish whether differences in workers’ math and reading skills—acquired before they entered the labor force—accounted for any gap based on race, Ritter looked at the workers’ performance on that Armed Forces Qualification Test, administered in 1980, before the participants were old enough to work. The AFQT incorporates tests on arithmetic, reading comprehension, and vocabulary.

Ritter found that benefits were distributed with similar levels of racial inequality as income. In both cases, wage and benefit inequality appears to be a result of pre-market forces for men. That means that, when controlling for cognitive skills—brain pound for brain pound, so to speak—whites and non-whites don’t experience drastically unequal compensation outcomes. More surprising: black and Hispanic women are actually more likely to be offered benefits than white women. That’s consistent when controlling for the fact of lower rates of marriage among black and Hispanic women, who are therefore not able to receive benefits through a spouse’s employer. It appears that white women with higher rates of marriage and benefits through their spouse’s employer are more likely to take jobs that offer more cash and leisure in place of redundant perks.

The paper is well worth reading in full for the nuance it highlights in how racial economic inequality really works: Black workers seem to earn less because of differences in education or upbringing, while black workers’ employment shortfall appears to be more a factor of employer discrimination. In other words, black workers that manage to get a job appear to earn at comparable rates, controlling for education levels—but regardless of education, they appear to have a harder time getting a job, due to their race. Benefits add important shading to the story: If black workers aren’t getting as good benefits, then it would seem to reinforce the idea that black workers are left out of more comfortable positions, but face less discrimination getting more menial work that offers fewer benefits and no prospects for advancement.

Michael Fitzgerald
Michael Fitzgerald is an associate editor at Pacific Standard. He has previously worked at The New Republic and Oxford American Magazine.

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