ou may not realize it, but at this very moment, you’re riding an escalator — a wage escalator, that is. How quickly you rise to the top determines how much your wages will increase throughout your career. And your race and gender can make a big difference in the quality of your ride.
In a study recently published in Economic Letters, Professor of Economics Bart Hobijn, professors at the University of Minnesota, and the Federal Reserve Bank of San Francisco compared early- to midcareer wage growth among Black men, Black women, white men, and white women.
Using data from the U.S. Census Bureau’s Current Population Survey, which the U.S. Bureau of Labor Statistics uses to measure the unemployment rate and estimate income inequality, the researchers constructed career wage profiles to illustrate how wage growth differs for each of these groups over 15 years. And while Black workers, in general, showed slower wage growth than their white counterparts, Black men’s wages fared especially poorly when compared with white men’s wages.
All aboard the wage escalator
To explain these wage gaps, Hobijn and his colleagues use the metaphor of a wage escalator. How fast you go up the escalator determines how quickly, and how much, your wages will increase throughout your career. But the speed of your ascent depends on many factors.
ou may not realize it, but at this very moment, you’re riding an escalator — a wage escalator, that is. How quickly you rise to the top determines how much your wages will increase throughout your career. And your race and gender can make a big difference in the quality of your ride.
In a study recently published in Economic Letters, Professor of Economics Bart Hobijn, professors at the University of Minnesota, and the Federal Reserve Bank of San Francisco compared early- to midcareer wage growth among Black men, Black women, white men, and white women.
Using data from the U.S. Census Bureau’s Current Population Survey, which the U.S. Bureau of Labor Statistics uses to measure the unemployment rate and estimate income inequality, the researchers constructed career wage profiles to illustrate how wage growth differs for each of these groups over 15 years. And while Black workers, in general, showed slower wage growth than their white counterparts, Black men’s wages fared especially poorly when compared with white men’s wages.
All aboard the wage escalator
To explain these wage gaps, Hobijn and his colleagues use the metaphor of a wage escalator. How fast you go up the escalator determines how quickly, and how much, your wages will increase throughout your career. But the speed of your ascent depends on many factors.
“This is something that we tend to think happens just at the lower end of the income distribution to people with less education, but that’s not the case,” says Hobijn.
If they remain in the same jobs, Black and white men tend to see similar raises, meaning that they will be carried up the escalator at roughly the same rate. But that isn’t true if they switch jobs, which generally results in larger wage increases.
“You start on a job: Think of that as one step on the escalator. But sometimes you get lucky and find a better job, so you run up a few steps and move faster than the escalator,” explains Hobijn, who advises his students not to be afraid to change jobs.
Yet for reasons that are not entirely clear, Black men were the only group in the study to see smaller wage increases if they switched jobs than if they stayed put.
One step up, two steps down
The biggest factor slowing the rise of Black men up the wage escalator, however, is the rate at which they fall off.
The team’s analysis showed that Black workers in general churn through jobs at a higher rate than white ones. Black men, in particular, separate from their jobs much more frequently than white men, yet are rehired at only a slightly higher rate, causing them to experience longer and more frequent spells of unemployment.
Economists already knew that minority workers generally tend to suffer disproportionately from job interruptions. But they didn’t know how significant the cumulative impact of such interruptions could be over time for a specific group such as Black men.
“We had no idea that this was adding up to a doubling of the difference in their wages over the first 15 years of their careers,” Hobijn says.
Hobijn adds that many different underlying causes could be driving these outcomes, from outright discrimination and more subtle differences in employer perceptions of different groups to workers’ choices and behaviors. The appearance of wage gaps even among those with college and postgraduate degrees, for instance, suggests that people of color may be selecting majors and career paths that afford lower returns on investment than those chosen by their white peers. And workers who feel less likely to keep their jobs may also feel less incentive to build job-specific skills.
Greasing the wheels
Fortunately, there are ways of ensuring that everyone gets a smoother ride up the wage escalator.
Because wage inequality accumulates throughout workers’ careers, workforce development policies that bring government, business, and academia together to help workers find the best early- and midcareer opportunities can potentially reduce long-term earning gaps.
And because these gaps occur across all educational levels, institutions of higher learning such as ASU and business schools such as W. P. Carey have an important role to play as well. Mentoring programs can help college and university students understand the benefits of choosing majors with higher returns on investment, such as economics, business, and finance. Alumni associations can support students long after graduation with networking opportunities and peer mentoring.
In that sense, says Hobijn, the message of the research to universities and business school alumni is clear: “If this is something you care about, there’s stuff you can do.”
— Alexander Gelfand