One of the most important developments in the study of racial inequality has been the quantification of the importance of pre-market skills in explaining differences in labor market outcomes between Black and white workers. In 2010, using nationally representative data on thousands of individuals in their 40s, I estimated that Black men earn 39.4% less than white men and Black women earn 13.1% less than white women. Yet, accounting for one variable–educational achievement in their teenage years––reduced that difference to 10.9% (a 72% reduction) for men and revealed that Black women earn 12.7 percent more than white women, on average. Derek Neal, an economist at the University of Chicago, and William Johnson were among the first to make this point in 1996: “While our results do provide some evidence for current labor market discrimination, skills gaps play such a large role that we believe future research should focus on the obstacles Black children face in acquiring productive skill.”
Recently, I worked with a network of hospitals determined to rid their organization of gender bias. The basic facts were startling: Women earned 33% less than men when they were hired and their wages increased less than men once on the job. Yet, accounting for basic demographic variables known about individuals prior to hiring, these differences decreased by 74%. A problem remained, but it was an order of magnitude smaller than the unadjusted numbers implied.
Find the root causes of bias
Social scientists tend to categorize bias into one of three flavors: preference, information, and structural. Preference bias is good old-fashioned bigotry. If company A prefers group W over group B then they will hire and promote them more even if they are similarly qualified.
Information bias arises when employers have imperfect information about workers’ potential productivity and use observable proxies, like gender or race, to make inferences (gender stereotypes are a classic example).
Structural bias occurs when companies institute practices, formally or informally, that have a disparate impact on particular groups, even when the underlying practices are themselves group blind. Employee referral programs can fall into this category.