Question

4.the findings of James Smith and Finis Welch about the changes in African American wages between 1940 and 1980. Discuss how changes in schooling for blacks relative to their white counterparts may have impacted their relative wages during this era. In particular discuss and quantify the increase in years of schooling relative to whites (3 points), the reasons for the relatively greater increases in returns to schooling for blacks (4 points), and the impact of the overall increases in returns to skill (3 points).

Answer 1

The differential in average weekly wages between black and white men narrowed from 40 percent in 1940 to 25 percent in 1980.  The replacement of older cohorts by newer cohorts drived improvements in measured relative aggregate wages, combined with evidence that schooling and schooling quality improved more for blacks than for whites over the first half of the 20th century.  Improvements in the relative quality of black education were mainly responsible for the relative rise in black wages. In addition to that federal government policies, including passage of the Civil Rights Act of 1964, were instrumental in closing the wage gap. Blacks who entered the labor market in the 1940-1960 have received substantially more and better education than any previous generation of black workers.

The image below presents estimates of average wage rates for black and white male workers in the 1960, 1970, and 1980 decennial census.

There is a strong relationship between school quality and the economic return to additional years of schooling for black and white workers. Changes in school quality can explain from 50 to 80 percent of the relative increase in the return to education for black workers born in 1940-1949 over those born in 1910-1919. These intercohort changes, in turn, account for some 30 percent of the overall increase in the relative return to schooling for Southern-born blacks between 1960 and 1980. The measures of school quality can explain 15 to 25 percent of the convergence in relative rates of return to schooling for Southern-born black workers between 1960 and 1980. The remainder of the convergence in black-white relative returns to education is attributed to an economy wide increase in the relative value of black education between 1970 and 1980.

While returns to education for white workers fell sharply during the 1970s, returns for older cohorts of black workers were relatively stable. One explanation for this pattern is that the market price of acquired human capital (including higher quality education) fell between 1970 and 1980. We find some initial support for this hypothesis. In addition, increased demand for skilled black workers, stimulated by government legislation and judicial pressure, may have contributed to the relative rise in the return to education for black workers in the 1970.

There is also a direct relationship between the relative quality of schools for black and white students from a particular state and cohort and their relative earnings later in life. Measures of school quality can explain roughly 25 percent of the convergence in black-white relative earnings between cohorts born in 1910-1919 and those born in 1940-1949, and 15-20 percent of the overall growth in black-white relative earnings between 1960 and 1980. In our view, the evidence suggests that changes in school quality are responsible for some, but by no means all, of the narrowing of the black-white earnings gap between 1960 and 1980. A significant share of the earnings gains made by black workers between 1970 and 1980 arose through increases in the relative earnings of continuing cohorts of older black workers. If the quality of education is a permanent attribute of individuals (as we have assumed), these changes cannot be explained by school quality effects.