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Joint Development & Public Economics Workshop - Francois Gerard

Thu, 03/30/2017 - 11:40am

Francois Gerard

Columbia University

494 Uris Hall


Firms and the Racial Wage Gap: Evidence from Brazil

by David Card, François Gerard, Lorenzo Lagos, and Edson Severnini


Much of the existing economic research on race-related wage differences in both the U.S. and Brazil builds on the seminal model of Becker (1957), which assumes that a given worker faces a market-determined wage that includes a market-wide discriminatory component. Recent work on frictional labor markets, however, suggest that wages often also incorporate firm-specific components that may contribute to racial disparities. Specifically, when firms have wage-setting power, the racial pay gap will depend in part on the extent to which higher-paying firms differentially hire white versus non-white workers, a between-firm sorting effect. The wage gap will also depend on the relative size of the pay premiums offered by a given firm to the two groups, a within-firm relative wage-setting effect. In this paper we use administrative data covering all formal sector workers in Brazil for the period 2002-2014 and we estimate models for the wages received by individual workers on different jobs that include fixed effects for each worker and fixed effects for each employer (Abowd, Kramarz, and Margolis, 1999). We then use our results to measure the impacts of firm-specific wage setting and hiring policies on racial wage differences. We find that firm-specific components account for about half of the racial wage gap that remains unexplained after controlling for differences in age and education levels. However, for male workers, we show that the role of firms in exacerbating racial wage differences is primarily due to a race-blind "positive assortative-matching" effect: higher-paying firms disproportionally hire higher-skilled workers, and black workers are estimated to have lower skill levels on average. We find more support for discriminatory hiring and wage-setting policies in the case of female workers.


Event Categories: Development