How women and minorities have driven wage growth

Brian Wallheimer | Oct 10, 2018

Sections Economics

The average American worker in 2010 earned two-and-a-half times as much as in 1960, or $22,000 more each year, based on data adjusted to 2009 dollars. Earnings grew from around $14,700 to $37,000.

A quarter of that jump is due to the decline in barriers facing women and minorities entering certain professions, according to Chicago Booth’s Chang-Tai Hsieh and Erik Hurst and Stanford’s Charles I. Jones and Peter J. Klenow. Using US census and other data, the researchers find that as women and African Americans overcame obstacles at work and in schooling, they faced better employment opportunities, which played a significant role in driving up wages. 

Women and minorities were long essentially barred from many fields, including medicine and law, and concentrated in other fields. In 1980, the researchers note, young white women were 64 times more likely than young white men to work as secretaries—and one-fourth as likely to work as lawyers. 

In 1960, 94 percent of doctors in the United States were white men, even though there is nothing innate about white men that makes them better doctors. Rather, it was far harder for anyone other than white men to be educated and hired. The discriminatory barriers—and the consequent stifling of competition—made wages lower than they could have been if the most talented minorities and women had been competing with men for employment. 

“Did that cost society that there weren’t any black doctors?” Hurst asks. “The answer to this is yes. When you match people [to jobs] better, you get productivity growth.”

Many women and minorities encountered discrimination when applying for jobs. The researchers point to Sandra Day O’Connor as an example. Despite finishing third in her law-school class, the future Supreme Court justice could only find work as a legal secretary upon graduation. 

Many others had trouble getting the education needed to enter high-skilled professions. Even after the US Supreme Court ruled in 1954 that schools had to be desegregated, Alabama Governor George Wallace stood in a doorway in 1963 to block black students from entering the University of Alabama. Ultimately, sexism and racism in various forms held back talented people from positions they could have done well in.  

And that, the researchers find, hurt economic growth. Hsieh, Hurst, Jones, and Klenow modeled aggregate productivity as talent allocation shifted between 1960 and 2010, focusing on the outcomes for white men, white women, black men, and black women, aged 25–54. “A big part of earnings growth reflects rising labor force participation of women in response to falling barriers,” the researchers write. “Aggregate labor force participation rates rose steadily in the data, from 60 percent in 1960 to 76 percent in 2010, primarily due to increased female labor supply.”

In 2010, had all frictions been removed, including hiring discrimination and barriers keeping people from jobs, GDP today would be 17 percent higher.

More-equitable investment in people’s skills and education accounted for about a quarter of the growth that can be tied to the change in occupational distribution, the research suggests. Barriers to such investment can take the form of preferences teachers and parents have for certain students, and the quality of educational opportunities available—and their lowering has given women and minorities a better chance to see the highest return for their talents. 

The researchers calculate that another 6 percent of earnings growth came from a decline in discrimination in the labor market, as employers hired more female and black workers. 

Very little of the earnings growth came from changes in career preferences. Women and black people wanted to become doctors and develop other careers; they simply weren’t being allowed to do so, the researchers determine.

But despite all the progress made from 1960 to 2010, there remains room for improvement, note Hsieh, Hurst, Jones, and Klenow. In 2010, had all frictions been removed, including hiring discrimination and barriers keeping people from jobs, GDP today would be 17 percent higher. What’s more, they write, “we suspect that barriers facing children from less affluent families and regions have worsened in the last few decades.”