Why do less-skilled4 African American and Hispanic men continue to experience disparities in employment outcomes relative to whites? In answering this question, neoclassical economists generally suggest that disparities stem from skill differences, while many racial theorists commonly assert discriminatory practices. The rise of incarceration as a lifecourse event among less-skilled minorities, particularly African American men, has made involvement in the U.S. criminal justice system a critical factor in evaluating racial employment disparities. By examining how race and incarceration history jointly predict employment disparities within individuals while controlling for racial differences in skills, this paper empirically examines employment theories of neoclassical economists and racial theorists.
Audit studies and employer surveys have found penalties for both a criminal record and race in the labor market (Holzer et al. 2004; Holzer 2007; Pager 2003; Pager and Quillian 2005; Pager and Western 2005), with disparities present even when
employers express no preference against hiring ex-offenders or African Americans. Pager’s (2003) audit study dramatically shows these results. In matched pairs
interviewing for jobs, white ex-felons were as likely to receive callbacks as black men without a criminal record. Rate of callbacks received by black ex-felons was close to zero, with study size possibly suppressing full differences between black men with and without a criminal record.
4 Here, I define ‘less-skilled’ as those who have at most a high school education and no extended college or educational training. Morris and Western (1999) document the decline in real wages for the bottom 80% of income earners in the 1970s, 1980s, and 1990s.
Neoclassical economists such as the Nobel Laureate James Heckman (1998) have discounted the findings of audit studies as evidence of discrimination, viewing statistical racial differences in wages as approximate “markers” for average racial differences in AFQT or SAT scores (Becker 1957; Neal 2005; Neal and Johnson 1996). Relative to employers who do not perform criminal background checks, research of employers by Holzer, Offner, and Stolls (2004) has found that employers who perform criminal
background checks are statistically more likely to hire African Americans. Such research suggests that race may be used as a proxy for not hiring those with criminal histories.
The extension of incarceration to racial disparities in employment results, in part, from incarceration becoming increasingly common among less-skilled minorities. Approximately16 million men, including 5.5 million black men, are estimated to have possessed a felony conviction in 2004 (Uggen, Manza, and Thompson 2006). At current incarceration rates, Bonczar (2003a) has estimated that one-third of black males, 17% of Hispanic males, and 5% of white males will spend one year or more in state or federal prison. Pettit and Western (2004b) have found that incarceration disproportionately impacts less-skilled men and minorities; black high school dropouts remain at greatest risk, with 60% spending one year or more in prison by age 44. Work by urban
ethnographers (Anderson 1990b, 1999; Duneier 1999) and quantitative researchers (Holzer 2007; Western 2002; Wilson 1996b) have documented how issues of poverty, homelessness, wage penalties, and unemployment occur for ex-offenders. Western and Pettit (2005) have argued that as much as 60% of the wage gap between blacks and whites may be explained by wage penalties leading black ex-offenders to choose unemployment..
Among neoclassical economists, these wage and employment disparities are interpreted as derived from skill differentials or perceived discrimination. James Heckman (1998, 2000) argues that an individual’s internalization of perceived
discrimination creates behaviors and sorting that drives down mean earnings and wages. In studies of wages and labor-market outcomes (Donohue and Heckman 1991; Neal and Johnson 1996), empirical evidence supports the view that perceived discrimination alters both performance and decisions to enter labor markets. Extending the statistical
discrimination models of Gary Becker, Holzer, et al (2004) interpret reluctance of small firms to hire black men as a proxy for risks associated with hiring ex-felons.
Countering neoclassical interpretations, urban ethnographies (Anderson 1990b; Newman 2000; Wilson 1996b) and audit studies (Pager 2003; Pager and Western 2005) provide evidence that effects of race and a criminal record hinder less-skilled workers in the labor market. However, empirical research on how race and incarceration may jointly impact incarceration is currently lacking. Sociological research by Western (2002) and Johnson (2003) document wage differentials by race and criminal background, but sample size and quantitative methods limit applicability to findings from audit studies and ethnographic research. In researching the effects of incarceration in the transition to adulthood, Raphael (2006) utilizes advanced modeling techniques to determine how incarceration impacts employment, but fails to investigate how race impacts labor market outcomes. Traditional fixed effect modeling also assumes normally-distributed outcomes, predisposing analysis to continuous variables such as wages.
This paper augments existing audit studies and prior empirical research. Using panel data from the 1979 National Longitudinal Survey of Youth (NLSY79), I focus on
how labor force participation and unemployment may differ for minorities and ex-felons. By starting with a sample of less-skilled men (e.g., no more than a high school degree or GED at age 22), I attempt to empirically test if unemployment and labor force
participation vary for populations more closely resembling audit studies of less-skilled men. By estimating fixed effects models using negative binomial regression, I am able to (a) address critiques suggesting that disparities in employment reflect natural differences in productivity, (b) model non-normal distributions for weeks unemployed and not in the labor force during a calendar year, and (c) observe whether blacks and Hispanics differ from whites in employment outcomes given prior incarceration.