I am not Black, so I can only imagine the frustration, anger, and sadness that Black people feel right now. The murder of George Floyd at the hands of a Minneapolis police officer is a gross injustice. Unfortunately, it’s but the latest in a non-ending string of injustices that the Black community in the U.S. has faced since 1619. And, these injustices extend into the economic realm that I have been writing about in this blog. In this post, I want to present a small sample of research on the discrimination Black people face in our economy.

This research suggests that Black people have more trouble getting a job interview than otherwise similar white people. It also suggests that, once hired, Black people get paid less than otherwise similar white people. And, this research suggests that Black people have more trouble buying a home with those earnings than otherwise similar white people.

In the paragraph above, I used the phrase “otherwise similar” a few times. When economists describe discrimination, they don’t just mean that Black people end up with fewer jobs or less pay than white people. Instead, discrimination means that people who are identical get treated differently. So, the fact that Black workers make 20-30 percent less than white workers could be a symptom of discrimination, but it’s not evidence. That gap could also be driven by educational differences (which exist…and are due to their own inequalities). Evidence of discrimination would be that two identical people get treated differently on the basis of race. Unfortunately for our society, that evidence exists.

To put it simply: in the U.S. economy, white people have an unearned advantage over Black people.

Discrimination in Hiring

Identifying economic discrimination from data is difficult. Two people are never truly identical. If a white person got a job while a Black person did not, it could be discrimination. Or, the employer could be looking for a specific skill related to the job. Perhaps the white person indicated that they had the skill during the interview, but the Black person did not. A researcher can’t tell from the outcome alone what transpired without a ton of data. And, sadly, often times we don’t have that data. Luckily, economists are a tricky bunch, and have found ways to identify discrimination.

A Resume Study

I want to talk about a study that got around this lack of data in a particularly clever away. The study is by Marianne Bertrand and Sendhil Mullainathan and was published in 2004.  These researchers created fake resumes designed to be of equally qualified candidates of different races. The authors sent these resumes to employers in Chicago and Boston to see if they discriminated against the Black workers by calling them for an interview less often than the white candidate.

If you are paying attention, you are probably wondering how the heck a resume would convey somebody’s race. I don’t know about you, but I do not put “Geoffrey Sanzenbacher – White Guy” at the top of my resume. But, a person’s name is exactly how the researchers did it. The researchers examined birth certificates from the 1970s, when their fake candidates would have been born. They then identified names held disproportionately by Black people and those held disproportionately by white people. The idea was that employers would then guess the race based on the name.

Some examples are useful. Every single Ebony, Latoya, Laskisha, Kareem, Rasheed, and Termayne born in Massachusetts between 1974 and 1979 was black. So, a Boston employer would probably assume that a resume from someone named Latoya was from a Black person. And, every single Anne, Carrie, Emily, Brad, Geoffrey (hmm…), and Neil born in Massachusetts from 1974 to 1979 was white. So, I didn’t really need to put “white guy” on my resume to indicate my whiteness. My name was enough.

So, if the resumes with Black sounding names got fewer calls for an interview, it would suggest discrimination. Before talking results, one other aspect of the study is worth noting. The authors also varied the quality of the resumes. The authors sent two “good” resumes — one Black and one white — and two “bad” resumes to each employer. The “good” resumes had things like computer experience, professional certifications, or volunteer experience. The “bad” resumes did not.

The Results of the Resume Study

The results of the resume study strongly suggest that Black workers face discrimination. If no discrimination existed, then the black resumes and white resumes should have got roughly the same number of callbacks. That happy result did not happen, as you can see in the figure below. 

Figure 1. Callback Rates for Otherwise Similar Resumes, by Black or White Sounding Name

For the average resume, people with white sounding names were about 50 percent more likely to get a callback than people with black sounding names – 9.7 percent versus 6.5 percent.  With respect to the quality of the resume, white sounding names were about 25 percent more likely to get a callback if they had a high-quality resume than if they had a low-quality resume.  This result makes sense.  However, for blacks it hardly mattered, a high-quality resume got a callback 6.7 percent of the time and a low-quality resume 6.2 percent of the time.

Think about how this type of discrimination affects the decision to put together a good resume and learn new skills. Why get a better resume if it hardly helps you get a job?  In this study, a white individual with a low-quality resume actually had a better shot of getting a job than a Black individual with a high-quality one.  Not cool.

And if you think these differences seem small because the percentage point gaps are not huge, let me help you think of it a little differently.  Given these differences, to have a 90 percent chance of getting a callback, a white person would need to apply to 22 jobs. A Black person would need to apply to 34.  If you still do not think those differences are big, then maybe you have never applied to a job – not fun.

Discrimination in Wages

Discrimination in hiring is one problem Black people face. But, one would hope that at least once hired, Black and white workers get paid the same amount. Keep dreaming. I want to talk about a study I find especially compelling on wage discrimination.

A Regression Study

The study was conducted by a team of economists consisting of Roland G. Fryer, Devah Pager, and Jörg L. Spenkuch and was published in 2013. Unlike the last study, it looked at real workers getting real jobs. So, the authors couldn’t create fake resumes for similar people with difference races. Instead, the study took a “regression-based” approach. Basically, it compared the wages of people with similar characteristics like education and age to see if race mattered.

However, as I said above, it’s really tough to control for everything. But, these researchers had an extra arrow in their quiver. The data they were using came from the New Jersey Unemployment Insurance system. Unemployment Insurance payments are typically based on what people earned at their last job. So, the authors controlled for the wage at their last job. If two people look identical in terms of education, and made the same amount at their last job, it would stand to reason they should make the same amount at their next job. They don’t, and race matters.

Results of the Regression Study

The figure below illustrates the results. The figure shows how the wage gap changes as more and more similar people are compared to each other. The gap is always negative, but gets smaller as “controls” are added. In other words, some of the wage gap is due to things like education. Black people are less educated than white people (another inequality for another post). But, a gap remains. That gap is wage discrimination.

Figure 2. Remaining Wage Gap After Various Controls Introduced

The figure shows that, before any controls are introduced, the wage gap is 40 percent. Comparing similar workers in terms of education, age, and gender reduces the gap to 29 percent. The study then shows that controlling for past wages reduces gap to 16 percent. In other words, Black people who have the same characteristics as white people, and made the same amount at their last job, make 16 percent less at their next job. A full third of the wage gap is discrimination.

Black workers have more trouble finding a job than white ones. And, once they do, they get paid less. OK, but at least once Black workers have money, they can still buy a home. Money is money, right? Fat chance.

Discrimination in Housing

America’s history with housing equality is horrible. Horrible probably isn’t a strong enough word, but I’m trying not to swear too much in this blog. But, the present isn’t great either. For example, a recent undercover investigation by Newsday turned up rampant housing discrimination on Long Island against Asian, Hispanic, and especially Black home buyers. The technique that study used, paired undercover testers, is yet another way to identify discrimination. And, it’s the technique used by a larger, national study that I want to present.

A Study with Actors

In housing discrimination studies, a common approach is to send actors to a real estate agent or apartment. One actor may be white, the other Black. The actors will behave similarly. And, both actors are always given financial histories that unambiguously qualify them to rent or buy in the area they are looking. The study will then record who received favorable treatment. A common measure of favoritism would be being told about or shown more homes. The study then looks at how much more likely the white actors were to receive favorable treatment than the Black actors.

Comparing favoritism rates is a way to get around the fact that any one interaction where a white person is favored might not be discrimination. The real estate agent may have had to pick up a kid from school right after their meeting with the Black buyer. But, if whites are favored over a large sample, it suggests discrimination.

The study I want to talk about was conducted for the U.S. Department of Housing and Urban Development in 2012 by The Urban Institute. If you want to hear what this sort of study sounds like, I highly recommend this podcast.

The Results of the Acting Study

The results of the acting study are pretty easy to summarize. Black people are discriminated against, as the figure below shows. Yes, those numbers are all negative.

Figure 3. Favoritism Differential between Black Testers and White Testers

What’s worse is that the discrimination seems worse in markets to buy a home. For the middle income American, the only wealth they have is often tied up in their house. So, housing discrimination is really discrimination against the accumulation of wealth. Maybe it shouldn’t be a surprise that the typical white family has 10 times the wealth as the typical black family.

What’s Next

The murder of George Floyd has brought issues of racial injustice to the forefront of national conversation. These issues never should have been on the back burner in the first place. This post contained three studies (a small sample of all such studies), all of which were dated in this millennia, not the 1860s or 1960s. In the 2000s, Black people still face hiring discrimination, wage discrimination, and housing discrimination. In fact, we have made no progress in racial income inequality since the 1970s.

So, here We are. I would be lying if I said I knew the solution to the economic inequalities I laid out. I have ideas, but I don’t want to make this post 30,000 words long. But, my guess is that a good first step would be for white people to admit we have a problem. In a recent study by The Pew Charitable Trusts, only 37 percent of white people thought our country needed to do more to give Black people equal rights to white people. If white people cannot admit to being given advantageous treatment, then it’s hard for them to start helping to find a solution. And having white people on board with making progress is important — they still represent two-thirds of the electorate.

I think part of the problem is that it hurts to admit that one has been given advantages at the expense of another. In a country obsessed with merit, we want to have earned what we have. But, white people need to listen to Black people in this moment…they are not protesting a fiction. The studies above lay out the case. It’s time to admit we have a problem, and face it.