Bryan Caplan  

It's Not Just Me: Further Background on Blacks' Return to Education

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After blogging some simple regressions showing that, contra Harford, blacks actually have an unusually high return to education, I emailed my friend, and noted labor economist, Gordon Dahl, for further background. He gave me permission to reprint the following:

Neal and Johnson (1996, JPE) was the seminal paper I was referring to in my last email. It actually focuses on the overall black-white wage gap (not the gap in the return to education between blacks and whites). The main point there is that much of the black-white wage gap for men, and all of the gap for women, disappears if you add afqt as an additional covariate in a log earnings regression. Interestingly, they find no significant difference in the return to afqt by race. If you look at Appendix Table 1, you do find that blacks earn a significantly higher return for a college degree compared to whites. This is the type of result I presume you were referring to in your previous email.

Oettinger (1996) has a very nice paper on statistical discrimination which also interacts black with education. While he finds a positive estimated coefficient on the interaction, it isn't significant in his specification.

More generally, when researchers do Oaxaca-type decompositions, they often break things into the portion attributable to differences in characteristics between blacks and whites versus differences in the returns to those characteristics (see Altonji and Blank's 1999 handbook chapter for examples and an excellent summary of what was known about race and the labor market more generally). The estimated coefficients are not always reported in such papers, but researchers definitely know when differences exist, since they need to use this information to calculate the differences.

Bottom line: The NLSY regressions I posted seem unusually strong and clear-cut, but the basic result that blacks have a larger-than-average return to education is already known in the literature.

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COMMENTS (11 to date)
Buzzcut writes:

Unusually strong and clear cut? With a R^2 of .11? Most of the variation can't be explained with the control variables you have chosen?!?

Jason Malloy writes:

Yep, your points are already well established in the literature. See my Marginal Revolution comments on this recent post about discrimination.

A typical tactic for others when presented with this info is to then imply that the IQ gap itself is a product of discrimination, something that is contradicted by different lines of evidence (including the distribution of IQ within families, which is the same for white and blacks)

Harford's writings on race, like any fashionable intellectual, are dishonest, and highly selective in the information they report or even bother to read. (His comments on his blog after your post indicate he didn't even know about this literature either... The Neal and Johnson paper has been cited 500 times!)

Bryan Caplan writes:
Buzzcut writes:

Unusually strong and clear cut? With a R^2 of .11? Most of the variation can't be explained with the control variables you have chosen?!?

That's a general problem with virtually all efforts to predict wages and income - not a special flaw with the regressions I posted. If you want to suspend judgment until the R^2 gets above .5, you're going to have to suspend judgment on the entire subject. :-)
Loki on the run writes:

So why is the return on education for blacks so good?

Is it because there are so few, but employers are harassed by government for not having a token few, and thus there is high demand for educated blacks?

Steve Sailer writes:

When the 68th "most influential man in American history" (according to the recent Atlantic Monthly survey of leading historians), James D. Watson, gets fired for referring to this kind of research in public, it's easy to see why so many academics are ignorant on this subject.

Dr. T writes:

Loki on the run is correct: College educated blacks are in high demand by corporations and governments (to fill unofficial federal quotas). The high demand increases their pay, which explains why they get a bigger education effect than non-blacks.

I worked at a VA medical center and saw many blacks with college degrees holding positions they weren't qualified for. Memphis is a black majority city, and Human Resources and hospital administrators wanted staff race ratios to reflect this. Unfortunately, many beneficiaries of this policy felt that they were entitled to a high paying job just for having a BA--they didn't feel they actually had to do the job. Amazingly (to me), even the incompetent ones were promoted at a faster rate than non-blacks. Non-black women also benefited by this approach, but not as much as blacks of either sex.

Pierre writes:

I felt that you had soem tremendous viewpoints howevere going to school with a lot of blacks i have noiced that they tend to fend fro each other and look out for one another in oreder to help them in scoiety and grow to help one another...Howevere you don't see the more mature males give other peope a rough time about anything whteher it has to do with race or not...It more of the females that do not show respect. In ragards to recieving a high education i feel that being in a more prominent black school the blacks do look out fro one another such as a family would do...Therefore it could be easier and less difficult to recieve an higher education due to the fact that your able to withdraw strain and stress from the brain...

Pierre Koehler writes:

I thought the article was very interesting int he fact that you have stated that more blacks get more reginition for the work they do and receive their diploma more than white. It seemed unusually and interesting and brought a sense of strong intellect that people may underestimate.

RogerClemens writes:

Bryan --

It would be worth thinking about why *both* (a) blacks have a higher return to education than whites and (b) case-control studies show that even highly educated blacks are less likely to receive an interview call-back (along the lines of studies cited by Hartford).

We have to consider how being less likely to receive a call-back translates into wage rates and whether this translation differs by level of education. If blacks get call-backs 5% of the time versus 10% for whites, a black applicant who submits 100 resumes will get 5 interviews versus 10 for a white. How valuable are these 5 "extra" interviews? Well, it depends upon how competitive the market is. It could easily turn out that these 5 extra interviews are not as valuable to highly educated applicants but are very valuable to less educated applicants.

If so, high returns to blacks are the result of having fewer interviews being especially costly to low-educated black applicants.

MattS writes:

What if blacks simply choose majors that lead to higher-paying professions? Any evidence of that?

Jane writes:

It's odd that women don't have the same boost in educational returns since both blacks and women are considered underrepresented groups. Supply of female laborers is probably higher so women don't get the same bump that African-American workers get.

Another interpretation of the findings that African-Americans are getting higher educational returns than whites is convergence. Since African-American workers' educational returns were arbitrarily held below market levels for so long, the returns are increasing at a faster rate than comparable returns for whites.

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