Exclusionary Hiring or Assortative Matching? The Impact of Hiring and Pay Policies on Racial Wage Differences in Brazil

Investigators: CDEP Affiliate François Gerard with David Card, Lorenzo Lagos, and Edson Severnini

Race exerts a powerful influence on labor market outcomes throughout the Americas. Though part of the wage gap between different race groups is typically attributable to education or other observed factors, unexplained pay disparities are a major policy concern in the U.S. and many other nations. In Brazil, a steady stream of research since Silva (1978) and Oliveira, Porcaro and Araújo (1981) has shown that the unexplained wage gaps between white and nonwhite workers are surprisingly similar to those in the U.S., despite important differences in the historical background and legal setting in the two countries.

Andrews (1992) presents an historical comparison of racial differences in the U.S. and Brazil and concludes that differences were greater in the U.S. until the 1960s, but are now similar or even larger in Brazil. Arcard and d'Hombres (2004), Reis and Crespo (2005), Garcia, Nopo and Salardi (2009), Bailey, Loveman and Muniz (2013), and Cornwell, Rivera and Schmutte (2016) provide more recent studies of racial wage differences in Brazil. Skidmore (1992) and Telles (2004) provide a broader perspective.

Most economic research on race-related wage differences builds on the framework of Becker (1957), which assumes that a given worker faces a market determined wage that is the same at all firms but can depend on the distribution of discriminatory preferences across employers.See Charles and Guyran (2008, 2011) for a recent analysis of the relationship between measured preferences and unexplained wage gaps in the U.S., and Hirata and Soares (2016) for an application in Brazil. A growing body of work on frictional labor markets, however, suggest that wages in modern economies also incorporate firm-specific pay differences that may contribute to racial disparities.See Manning (2011) for an review of frictional and imperfect competition models of the labor market. Black (1995) presented an early search-based model of discriminatory hiring. Lang and Lehmann (2012) present a review of the discrimination literature emphasizing frictional market models. Card, Cardoso and Kline (2016) study the effects of firm-specific wage setting on gender wage gaps in Portugal. Specifically, when firms have some market power to set wages, the racial pay gap will depend in part on the extent to which higher-paying firms differentially employ white versus non-white workers – a between-firm sorting effect – and in part on the relative size of the pay premiums offered by a given firm to different race groups – a relative wage-setting effect.

Available as "Assortative Matching or Exclusionary Hiring? The Impact of Firm Policies on Racial Wage Differences in Brazil," NBER working paper No. 25176.