Impact of International Trade on the Racial Wage Gap in the United States

Despite much effort to improve the economic status of racial minority in the United States, the racial wage gap is still present.  Today, for example, African American men working full time and year round have 72 percent of the average earnings of comparable White men. For African American and White women, the ratio is 85 percent (Rodgers III, 2008).  For other groups in general, recent evidence shows that White workers earn 10 percent more than comparable non-White workers.  Although this gap is smaller than it has been in the United States, it is indicative of persistent social inequality.

An important implication of Becker’s (1957) works on discrimination is that competition among firms may reduce the discrimination since discriminating firms in competitive markets will lose out to non-discriminating firms.  Furthermore, competition for workers will raise wages until the wages are eventually equal to the marginal products of labor.   

Competition comes from many sources: domestic and international.  Focusing on international perspective of competition, Essaji et al. (2008) find that import exposure helped narrow the racial wage gap by about 1.4 percentage points between 1983 and 1993.  They further find the effect to be especially pronounced at 2.2 percentage points among the most disadvantaged: unskilled Southern workers.

In this paper, we focus on both sides of international competition: imports and exports, and investigate how competition affects the racial wage gap among ethnic/racial groups in the U.S. labor market.  Specifically, this paper focuses on the extent of openness (defined by the ratio of net export to GDP), the degree of import-penetration (defined as the ratio of imports to GDP), and the degree of export-orientation (defined as the ratio of exports to GDP) of an industry to investigate the impacts of international trade on the racial wage gap in the United States. Since a change international trade in terms of openness would expose an industry to greater competition, the change might impact the racial wage gap. 

For example, if imported goods to the United States were generally manufactured by relatively low-skilled workers, then U.S. workers in industries with high import-penetration ratios might receive lower wages.  If non-White workers are highly represented among low-skilled workers in an industry, the racial wage gap in that industry would widen.  On the other hand, if White workers are highly represented in these industries, then international trade would reduce the discriminatory racial wage gap.  Disentangling these differential impacts on racial wage gap is inherently an empirical question.  This paper will use microdata from the Current Population Survey (CPS) combined with data from the U.S. International Trade Commission (USITC) and from the Bureau of Economic Analysis (BEA) to evaluate the degree in which international trade affects racial wage gap.