Affiliation: Federal Reserve Bank of Minneapolis
Title: "Racial and Gender Differences in School-College-Career Paths"
Abstract:
This paper examines the factors affecting early career gender and racial wage gaps. Using a rich
longitudinal administrative data from Minnesota and a dynamic discrete choice model, we decompose
the wage gap into three components: endowments of school quality, family background, ability, and
unobserved types; the decision path of sequential human capital in- vestment made by individuals in
high school, college, and labor market; and a within-path component, given endowments. We find that
41% of the gender wage gap can be explained by women choosing paths with lower earnings while
differences in endowments explain about 15% of the gap. In contrast, for White-Black wage gap, only
10% is explained differences in decision paths while endowments explain 33%. The residual
(within-path) gaps for both gender and race are driven by within-firm differences for high skilled
workers and across-firm differences for low skilled workers. Our findings suggest that pre-labor
market interventions that encourage students to take more quantitative college majors have a large
potential in re- ducing gender gaps while interventions in K-12 schools would be most effective in
reducing White-Black wage gap.