Income Disparities: What Does This Mean?

Michele Draeger of the Oregonian created this nifty little graphic which she informed me was drawn from Census data for an article about income gaps in today's O. I suspect it was from the Annual Social and Economic Supplement of the Current Population Survey. In case you are wondering what a Household by Ethnic Group is (as I was), it appears that it is based on the ethnicity of the self-reported "householder." Beyond that I cannot say (if you know more, do share) . Anyway, back to the point: in Oregon there is quite significant income disparity among households of different ethnicity. But what are we to make of such numbers? I think there are a number of competing (and perhaps complementary) explanations. I will restrict myself to what I think are the three big ones.

One, it could be a sign of discrimination by ethnicity and race in the labor market. Two, it could be a symptom of inequality by race and ethnicity in access to health care, educational quality, living environment, etc. Anything that may reduce human capital outcomes (human capital is simply anything that makes you a more productive person like education and experience). Third, it could be a self-selection story: perhaps many African American and Latino families have come to Oregon to take up low-paying jobs. So it is not, in other words, a reflection of unequal access to quality education, but that it just so happens that the African Americans and Latinos that have moved to Oregon are low educated ones. Conversely, as migration from Asia is hard, only the most educated ones make it to Oregon. (There is another argument about racial differences in innate ability but research has shown this to be false).

Where does this leave us in terms of policy? Well the policy implications are quite different. In the fist case it means that more needs to be done in the promotion and enforcement of anti-discrimination laws and perhaps even more affirmative action policies should be enacted. In the second case, it is not about the job market (people are paid based on productivity), but the human capital acquisition that happens in childhood and thus attention should be paid the making school quality more uniform, creating programs that improve childhood nutrition, etc. The third case suggests that there is no problem and therefore any policy intervention is a waste of time.

So which of these explanations seems to be the case? Well, economists, including myself, have studied discrimination in many different areas and found that it still exists and is quite strong. In an act of shameless self-promotion I will assert that workplace discrimination is perhaps the toughest to uncover, but that my paper with Mike Conlin of Michigan State uses a very clever technique to provide an answer, and the answer is yes - even in a place you might not expect it. The second explanation has a lot of empirical evidence as well - students from poor school districts fare less well on standardized tests, for example, and poor childhood nutrition has been shows to have adverse affects on ability. The third explanation is a curious one, it has been made on a national immigration level, but I have not heard in made in these cases, probably because the number of households that have moved to Oregon is probably a small percentage of all households - but who knows, maybe it is bigger than I think.

So this is why we should all be thankful that there are economists in the world to help us find answers to these questions so we can better target our resources and create more effective policy.