The Link Between Education & Inequality

While many economic and social barriers to progress have been ameliorated over the past 50 years, racial inequality continues to be a defining feature of American life. Understanding the causes of these inequalities is a subject of intense study. However, perhaps the most influential development has been the quantification of the importance of education (see, for example, Lochner and Moretti 2002, O’Neill 2000, and Neal and Johnson 1996) in explaining differences in later life outcomes.

The seminal work of Neal and Johnson (1996), which used the National Longitudinal Survey of Youth (NLSY 1979), showed that controlling for educational achievement shrinks–or altogether eliminates—the wage gap between blacks and whites and Hispanics and whites. Using a test score measure of basic skills that has been shown to be racially unbiased, the authors demonstrate that educational achievement among 15 – 18 year-olds explains all of the black-white gap in wages for young women and 70% of the gap for young men. The Hispanic-white gap is also eliminated. By looking at the test scores from only the younger end of the cohort, Neal and Johnson are examining pre-market skills acquisition—or, the skills and knowledge we reasonably expect children to receive in K-12 education—rather than any other investments in skills, higher education, or any work experience.

Econ Outcomes

Fryer (2010) extends this analysis in important ways. He examines similar outcomes for a younger cohort of the NLSY (1997) and adds unemployment as an outcome. Fryer’s extended analysis of the NLSY97 cohort reveals the following about the wage gap:

  • The Black-white wage gap for men is reduced from 17.9% to 10.9% after controlling for test scores. For women, the gap is reduced from 15.3% to 4.4% after controlling for test scores.
  • The Hispanic-white wage gap is statistically eliminated for both men and women after controlling for test scores.

The unemployment gap is also reduced:

  • Black men in the NLSY97 are almost three times as likely to be unemployed, which reduces to twice as likely when educational achievement is controlled for. Black women are roughly two and a half times more likely to be unemployed than white women, but controlling for test scores cuts this gap in half.
  • The Hispanic-white unemployment gap for men and women is statistically eliminated after controlling for test scores.

Fryer also examines incarceration and measures of physical health for the NLSY79 cohort.

  • Black men are about three and half times more likely to have been incarcerated than whites. That shrinks to about 80% more likely when educational achievement is accounted for.
  • Hispanic men are about two and half times more likely to have been incarcerated than whites. That is reduced to only about 50% more likely when test scores are controlled for.

While these gaps are still concerning, the reduction in these gaps after controlling for educational achievement is no less striking.

Therefore, despite these persistent disparities, there is a reason for optimism and a clear call to action. While alleviating poverty in developing countries and eradicating the ills associated with it would require massive and coordinated efforts in public health, education, and labor markets, in this country, significant steps towards reducing poverty can be made by ensuring that all K-12 students receive the same education.

Read the full paper on this subject, "Racial Inequality in the 21st Century: The Declining Significance of Discrimination."