The Cost Of Bias : - A Study About Wage Inequality and Discrimination in the U.S. Labor Market

Abstract: Wage inequality and discrimination are two interrelated issues that have significant implications for individuals, organizations and society. Although progress has been made over the past decades to address these issues, they continue to exist in many sectors of the labor market. The purpose of this thesis is to study the development of wage inequality among groups in the U.S. labor market in the time period 2000 - 2018. Using Mincer’s earning function and Blinder- Oaxaca decomposition, two regressions are estimated using micro-data from Panel Study of Income (PSID) for individuals living in the USA. Results from the estimated Mincer earning function in 2000 found that female respondents earned 27% less in hourly wage than a male respondent and female respondents earned 31% less in hourly wage than male respondents in 2018. The wage gap between a black respondent and a white respondent remained unchanged over the time period in the Mincer earning function where a white respondent earned 19% more in hourly wage than a black respondent. Results from Blinder- Oaxaca decompositions presented a wage gap at -0.06 log units between men and women in 2000 and -0.14 log units in 2018. The results from the estimated Blinder-Oaxaca decomposition shows that the total wage gap cannot be fully explained by endowments in the model which could be a result of discrimination in wage setting in the U.S. labor market. The unexplained portion has increased from 90.59 to 104.45 in the Blinder- Oaxaca decomposition for men and women. In 8.Appendix Blinder- Oaxaca results between other ethnic groups are presented.