Labor Market Dropouts , Selection Bias , and Trends in Black and White Male Wages

This paper examines the importance of labor market dropouts and selection bias in assessing black-white wage convergence by introducing a simple method of imputing wages to nonworkers. When nonworkers are included in the calculations, it is found that real wages of prime age black males increased less than 2 percent over the 1969-96 period in contrast to 9 percent wage growth observed among workers. Including nonworkers also reduces the blackwhite wage convergence over this period by approximately 30 percent. The paper finds that in addition to falling employment rates, an equally important source of selection bias is the growing gap between wages of workers and potential wages of nonworkers. JEL Classification: J22, J21