The Importance of Cost of Living and Education in Estimates of the Conditional Wage Gap Between Black and White Women

While evidence about discrimination in U.S. labor markets typically implies preferential treatment for whites, recent studies document a substantial wage premium for black women (for example, Fryer 2011). Although differential selection of black and white women into the labor market has been a suggested explanation, we demonstrate that accounting for selection does not eliminate the estimated premium. We then incorporate two additional omitted variables recently documented in the literature: (1) local cost of living and (2) years of education attained, conditional on AFQT score. After controlling for these variables, we find no evidence of a wage premium for black women.