Race and Outside Options: Evidence from U.S. Employer-Employee Data

Grant description:

This project asks how the racial composition of workers’ professional networks affect their wage growth and access to outside opportunities. Existing research has estimated that the inclusion of underrepresented workers in the U.S. economy since 1960 significantly contributed to U.S. GDP growth. Yet racial divides in earnings and opportunities persist. Understanding the sources of these gaps is critical for understanding growing income inequality and fostering broad-based growth. While many explanations have been proposed, relatively little is known about the extent of U.S. labor market segregation and its consequences today. This project will use restricted firm-level data to explore the role of workers’ professional networks in the persistence of race disparities in the U.S. labor market. Building on recent work showing that workers are able to renegotiate their wages when labor demand increases in their networks, and that referred workers are often similar to referrers in terms of age, gender, and race, the author proposes to estimate the impact of changes in the composition of the professional networks of workers to investigate whether the impact of an increase in local labor demand is sensitive to the size of the professional networks for underrepresented groups. This analysis will then be used to calibrate a search model that estimates the contribution of labor market segregation to the wage gap.