SOCIO-ECONOMIC WORKPLACE EXPERIENCE FOR WAGE EARNERS BY ETHNICITY AND GENDER

The focus of this paper is to evaluate similarities and differences of workplace settings between and within ethnicity and gender samples of wage earners. Twenty-seven variables broadly classified by tenure, education, family background, type of employment (craft, service production), and working environment are employed for this purpose. For each of the 27 variables, the null hypothesis is that the means of workplace settings by ethnic classification (black, white, Latin) and gender classification (male, female) are equal against an alternative hypothesis that at least one of the member group differs. The method employed for this purpose is one-way analysis of variance. In each of the classifications, samples were divided to reflect the level of ability (high achievement, low achievement) as well as the full sample. Furthermore, the full samples are employed to find whether differences between genders exist for the 27 variables. The results indicate that, though wage gaps by ethnicity and gender persist, the workplace settings are characterized by diversity. A plausible reason for diversity is the effect of affirmative action to eliminate what is described as ability misperception by employers who may perceive minorities to lack skills. JEL classifications: J15, J16, J08. INTRODUCTION Bell and Wray (2004) consider the war on poverty begun in 1964 an attempt to improve the quality of workers. Educational programs were devised to make the jobless more skillful, which appeals to private-sector employers. Yet, real wages, especially among the disadvantaged, have been on the decline. Wheeler (2005) showed that the states belonging to the Eighth Federal Reserve District have experienced increases in wage inequality. In 1970, the top 90 percentile of wage distribution was 3.7 times the 10 percentile. In 2000, the ratio increased to 5.5. Similar trends were observed for the entire United States. Numerous factors lead to wage inequality, according to Kassa (2006), who explains that there are direct and indirect factors included in a typical study by the use of regression analysis. Most attention was given to economic and technological development. Included also are abundance of natural resources, bank concentration, population educational level, education inequality, urbanization, structure of the population, and composition of households. Kassa concludes that as many factors as possible should be included in the analysis of wage inequality. Broadly, the factors can be aggregated into groups that include economic and technological development, resources and their distribution, demographic factors, political factors, cultural Southwestern Economic Review 2 factors, and macroeconomic factors. A case in point is the work of Ezeala-Harrison (2005), which analyzes wage determination in rural agricultural labor by considering the two-tier labor market. For Tier 1, technology and productivity are primary in determining wages while for Tier 2, considered as secondary market clearing, the wage rate is flexible. Goldsmith, Hamilton, and Darity, Jr. (2006), henceforth (GHD), recognizing the documented lower wages of black and Latino workers where differential human capital and discrimination are given as the explanations for disparity, set out to investigate workplace settings descriptors for explanations of differences in wages. Samples were chosen to determine characteristics of workplace settings. The full samples by ethnicity (blacks, whites, Latin) and by gender (male, female) were defined by 38 indicator variables, separated into high achievers and low achievers. The demarcation line is self-reported high school grades for all the 38 indicator variables. The purpose of their analysis was to determine some explanations for the wage gaps. The aim of GHD was to test a hypothesis they call the theory of ability misperception, which could explain the relative wages of black and Latino workers during their working years. The hypothesis tested by GHD is made up of three propositions. The first is that employers, because they believe that non-white employees acquire fewer skills in prior employment, award white employees higher pay. Thus, the assumption here is that white workers are more skillful than are nonwhite workers, a form of racial discrimination. The consequence is that many capable non-white workers are denied jobs. The second proposition relates to on-the-job observations of non-white workers by employers, whereby the employers realize that their perceptions of underrated abilities were not correct. Therefore, the difference in returns between white and nonwhite to additional tenure or seniority will be smaller than the difference in returns to prior experience of the first proposition. The third proposition, a stronger version of the second proposition, is that rewards for additional seniority by nonwhites exceed that of whites. The first proposition has a direct implication for affirmative action policies. Enforcement of antidiscrimination laws could eliminate the bias of race by requiring employers to hire minorities. The policies could offset the initial undervaluation of prior experience of non-whites. The second and third propositions have the implications of a job lock. Non-white workers would refrain from seeking employment, fearing that their skills would be initially underrated by a different employer. GHD explains that employers’ perceptions of non-white workers’ lack of abilities could arise from genuine ignorance and thus these employers would adjust their perception by awarding the workers higher on-the-job returns. On the other hand, employers undermine non-white talents because of racist inclinations. There are, however, mechanisms that force employers to adjust non-white wages. For instance, these workers can prove unfair treatment or hostile work environments. In either case, whether the perception is benign or racist, the second and/or third propositions hold. GHD believes that a wide range of workplace settings factors such as racialethnic supervisors, number of co-workers, and amount of contact with customers should be taken into account to determine whether workplace settings variables impact differences in rewards. GHD’s work, therefore, provides direct controls for a Socio-Economic Workplace Experience for Wage Earners by Ethnicity and Gender 3 large range of workplace settings descriptors that could prove or disprove ability perception. Results of GHD, by use of regression analysis, support the three propositions for males and subsamples for white and black females. Their research is based on regression methodology, using a large set of data (to be discussed later). Regression entails the use of individual observations that could mask a comprehensive comparison of inequality, whether coming from withingroup or between-group classifications, according to Cunha and Heckman (2007). This research, by using the summary statistics provided by GHD, investigates the broader aspects of the settings of workplace experience. The comparisons are made for male (black, white, Latin), female (black, white Latin) for both high and low achievers, and ratios male/female for blacks, whites and Latin. The research will show that though the results of GHD gave credence to the three components of their theory of ability misperception, a broader classification of between and within groups of ethnicity and gender for workplace experience settings showed no discernible statistical significance. In other words, upon overcoming initial discrimination in hiring, the workplace settings for the diverse workforce discrimination are completely absent. Therefore, policies of affirmative action which give priority of hiring by ethnicity and gender are positive tools to enhance equality. Once minorities are employed, discrimination in workplace settings subsides. Employers find it to their advantage to treat all workers fairly and equally. This introductory section of the paper is followed by a review of literature that provides background information for GHD’s theory of ability misperception. Sections describing the data and methodology used and results will follow. A final section concludes. REVIEW OF THE LITERATURE The theory of ability misperception advocated by GHD was inspired by Farmer and Terrell (1996) and Lewis and Terrell (2001). The gist of these articles is that economic theory explanations for wage gaps range between marginal product of labor being lower for one group as compared to others, to unobservable factors such as average intelligence and ethnic human capital because of past discrimination. An alternative to these views proposes that wage gaps are due to prior opinion of employers about a group’s ability. Farmer and Terrell (1996), citing studies evaluating black and Hispanic workers with white workers with equal resumes, found that at every stage of the job-seeking process, minority candidates trailed. They believe that discrimination results from sincere, though incorrect, beliefs about ability of ethnic groups. However, returns to on-the-job tenure appear to be higher for black workers. These essays conclude that affirmative action may be warranted to alleviate initial discrimination by employers. Fiske and Ruscher (1993) provide a look at negative stereotyping for minority groups. Even though Americans honor the principle that all people are created equal and therefore should have an equal chance for the good life, minorities are perceived to violate work-ethic norms, depend on welfare, and fail in school. Fiske et al (2002) argue that stereotypes are two dimensional. In essence, positive stereotypes do not contradict prejudice depending on whether the group is noncompetitive, such as the elderly, or whether the group is competitive, such as Asians. For the elderly, the negative stereotype of low competence is jointly acted with a Southwestern Economic Review 4 positive of warmth, while for Asians, the