How much of the racial wage gap is due to differing job recommendations from friends?

by on November 25, 2017 at 2:27 am in Data Source, Economics, Uncategorized | Permalink

This paper estimates the extent to which inequality in jobs found through friends can account for the aggregate wage gap between black workers and others in the US. Data from the NLSY79 are used to estimate a job search model in which individual productivity is distinguished from social capital by comparing the wages and frequency of jobs found directly with those of jobs found through friends. Jobs found through friends tend to pay more, but this premium is lower for black workers; the difference can account for more than a tenth of the racial wage gap.

Here is the paper, by Nicholas Tenev, a job candidate from the University of Wisconsin.

1 Ray Lopez November 25, 2017 at 2:31 am

This paper is a variant of the meme “Friends don’t let friends watch Friends”. Think about it and see if you agree. The corollary is that moving from a ghetto would increase your wages and enrich your life experiences. And they award PhD’s over this kind of research?

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2 Beliavsky November 25, 2017 at 7:58 am

Research confirming one’s intuition can still be useful. Sometimes your intuition is wrong, and intuition is not quantified.

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3 Chip November 25, 2017 at 4:16 am

The median household incomes for Asians, Whites and Blacks are:

72,000

59,000

36,000

This correlates with rates of marriage and stable two-parent families. The most glaringly obvious reason for economic disparity seems to be the one that we never talk about.

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4 dearieme November 25, 2017 at 7:20 am

Life is one damn correlation after another.

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5 Paraguayan November 25, 2017 at 9:06 am

Such is life in Tyler’s blog.

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6 Bill November 25, 2017 at 1:56 pm

Chip, The study is of persons of the same skill level, black and white; ie, it controlled for skill levels.

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7 required November 25, 2017 at 9:48 pm

But if it accounts for the number of working adults in a Median household, then the number is lower for Asians than Whites.

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8 A Truth Seeker November 25, 2017 at 5:47 am

So that is what America has become: a country where nepotism and cronyism rule. Either you bow before the cool kida and play ball their way or you don’t play ball at all!

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9 Doug November 25, 2017 at 7:08 am

This is putting the horse before the cart. I’m not going to recommend someone who’s incompetent. It’s entirely possible that blacks get fewer personal job recommendations because they’re less qualified and their friends know it. The paper makes no attempt to address this hypothesis.

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10 dearieme November 25, 2017 at 7:22 am

“This is putting the horse before the cart”: that’s precisely what you are meant to do unless you have a desire to teach horses to push.

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11 Bill November 25, 2017 at 9:10 am

+1 Yeah, but don’t get too close to the rear end of the horse either.

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12 Bill November 25, 2017 at 12:07 pm

Doug, The paper is not about getting fewer job recommendations, but rather getting job recommendations that explain part of the gap. The paper controls for skill levels between black and white persons.

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13 anon November 25, 2017 at 2:43 pm

Bill, there’s a lot more to job competence than quantified skill level.

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14 derek November 25, 2017 at 3:46 pm

Yes, there is experience. You gain experience by working, and you get hired without experience through connections. If the group of people you have connections with have businesses, entrepreneurial, have jobs, etc, then you have opportunities that aren’t available to someone who doesn’t, all else being equal.

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15 Bill November 25, 2017 at 6:30 pm

Doug, You are really trying hard. The paper controlled for skill level, that is, black and white persons had the same skill level.

Now you slither away by arguing “Oh, it’s not skill level, it’s only something only I can measure, like something “more than competence” in a skill level; stick with the study, and not what you imagine and can only claim without proof.

derek, I don’t understand your point. They are equal skill levels. What you are saying is what the paper is saying: connections matter. The premiums are lower for blacks.

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16 anon November 25, 2017 at 11:14 pm

Bill, I don’t know who Doug is but if you believe that job performance is only about quantified information, consider that it has been quantified that IQ matters more for job performance than the amount of experience a person has. If what you see as “skill level” is the only thing that matters, the IQ aspect wouldn’t be true. And that’s just one example of the many factors that can affect job performance besides what the paper qualifies as “skill level”, along with other things like personality traits, cultural factors, health, and home life. Incidentally, there is a large average IQ gap between white and black Americans which can impact job performance in a way that educational background sometimes doesn’t quantify. And the social problems in black communities (evidenced by stats and experience living around sizable black populations) suggest that they may be less likely to get along with co-workers or their boss. If I have a friend who is qualified on paper but just a bad employee then I’m not going to recommend them.

17 Bill November 26, 2017 at 8:26 am

Anon, You don’t have any basis for claiming that an equally skill black and an equally skilled white person have different IQs, and that there differences are race based.

But, I do have evidence of your racial beliefs.

18 wiki November 26, 2017 at 12:03 pm

Even economists know that measured skill levels are not the only predictors of competence and success on the job. They are just the easiest to control for. There are also areas like non-cognitive ability which are almost never properly controlled for. Family influences both before and after acquring different skill levels are relevant as are home peer effects (how your friends affect your work output). Think about something like resilience — what happens when you get an unexpected bad shock (like a poor evaluation) or an unexpected large promotion. Your peers (i.e. friends) have potential influence on this as well. It is well known that in many third world countries the lone person who is more successful than the other members of their extended family is beholden to the rest of the family, second cousins and all. Thus, the friends proxy could be picking up the extended influence of one’s peers. Yet the authors assume it is just the limited connections of their poorer friends that is driving their result. They don’t even think deeply about how endogenous the peer effects are. Are black people willing to mingle freely with all races and develop peers on economic rather than racial lines more likely to do well? That is relevant for business success. Just as in the old days it was legal to ask if a man was married to see if he was a stable, normal member of the community.

19 Matt November 26, 2017 at 2:26 pm

” The paper controlled for skill level, that is, black and white persons had the same skill level.”

It certainly claimed to. But it would be more accurate to say that it used the same deeply flawed methods that everyone else does.

20 chrisare November 25, 2017 at 7:58 am

Pretty small effect size.

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21 Bill November 25, 2017 at 9:09 am

Not if its you. Also, this is wage gap, not employment gap.

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22 chrisare November 25, 2017 at 9:39 am

It is. Nearly 90% of the wage gap is not explained by job recommendations from friends. What is the primary explanatory factor? Surely not this.

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23 Bill November 25, 2017 at 11:51 am

Ah, discrimination? Take a resume and put the name “DeShawn” in it as a substitute for your own name and see what it gets you.

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24 chrisare November 25, 2017 at 12:29 pm

Yes. But that is not a reason why this research and its small effect size is interesting.

25 Bill November 25, 2017 at 12:35 pm

Crisare, Please tell me what you think is interesting, and support it with facts.

26 Harun November 25, 2017 at 4:02 pm

I wonder if they ever consider changing their name?

Do they have a higher rate of name changes?

27 Bill November 25, 2017 at 8:59 pm

Harun,

Let’s play a game.

Tyrone (a black name) is not selected for an interview because of his name being associated with black people. Tyrone changes his name to Tyler, gets offered an interview, and shows up in person for the interview.

What result. If he wasn’t going to be interviewed because he had a black name, will showing up for the interview as Tyler overcome this person’s prejudice.

28 So Much For Subtlety November 25, 2017 at 9:19 pm

It depends on what the HR people are controlling for. If they refuse to hire someone called DeShawn because he is Black, turning up to the interview as Tyler is unlikely to help.

If, however, they are looking for something else, let’s suggest someone who is likely to be disruptive, then having a name associated with Black Nationalism is likely to be a red flag. Having a middle class White name is not. So turning up to the interview as Tyler ought to have little effect. It may be as simple as a class marker – a DeShawn is likely to be poor and poorly educated. A Tyler is more likely to know which fork to use with fish. Again there should be no effect at interview.

We do not know which effect matters because everyone just assumes it is racism. There is no basis for this. Jessie Jackson boasted that he used to spit in the White people’s food when he worked as a young man. I would suggest that when employers choose to hire someone called Consuela who is just off the truck from Guatemala rather than someone called Latisha they are not being racist. They are being entirely rational.

29 ladderff November 26, 2017 at 7:53 am

Here’s Bill, whining and nagging like a bitch as he asks for “facts.”

There are millions of people for whom putting down DeShawn (which is a stupid name by the way) would improve odds of hiring/being admitted.

30 Bill November 26, 2017 at 8:32 am

So Much and Laderff,

So Much: You drew from that person’s name that he was a Black Nationalist and that he is likely to be poor. Your detective skills from a name is amazing. What am I to presume from the name: So Much for Subtlety? Let me guess.

Laderff, Oh, the meme of the discriminated against white guy he loses his job to Deshawn because he has a black name.

You and So Much ought to get together.

Maybe you could form an employment agency.

31 ladderff November 26, 2017 at 12:31 pm

Maybe you could, idiot: there are apparently millions of underpaid women and “minorities” (i.e., not Asians) waiting for you to profit by. Let me know when your firm gets off the ground.

32 Matt November 26, 2017 at 2:28 pm

I suppose it really depends on whether or not independent recruiters are counted as “friend” recommendations. Or for that matter, considered at all.

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33 Bill November 25, 2017 at 9:21 am

How would you like not to be rewarded for your productivity or skills by 10%?

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34 Slocum November 25, 2017 at 10:03 am

You’re exaggerating the effect size. The claim is that recommendations explain 10% of the *gap*, not 10% of anybody’s entire income. So it would account for 10% of the difference between $16/hr and $24/hr for men (or about $0.80/hr) and 10% of the difference between $15/hr and $19/hr for women (or about $0.40/hr).

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35 Bill November 25, 2017 at 11:33 am

You are deliberately misreading what I said. I was responding to prior comments, including Crisare which explicitly is in reference to the gap. I also pointed out that it does not cover periods of unemployment. or job training or skills development. Over a lifetime, or even in the short term, this is a big difference, and it is only an AVERAGE.

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36 chrisare November 25, 2017 at 12:37 pm

I don’t know how big the gap is so I’m not sure how significant 10 of the gap is.

Nevertheless my threshold for an interesting finding is much higher than explaining only ten percent of a given inter group difference.

37 Matt November 26, 2017 at 2:30 pm

First, like someone who mistakes “money” for “compensation”. Secondly, like someone who will be looking for a better job. Third, like someone who thinks that averages apply to individual data points.

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38 Bill November 25, 2017 at 9:08 am

There is tons of research on this subject. all of which confirms this result. Look up the work by Granovetter, and if you want to read more I would suggest Jackson’s Social and Economic Networks and the SAGE Handbook of Social Network Analysis.
Chapter 22 entitled Labor Markets and Referrals in the Handbook of Social Economics. Jackson et al eds. summarizes the research.

Frankly, I am surprised by some of the comments above.
Don’t let intuition get the best of you. Stick with facts and read some research on the subject.

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39 Mary November 25, 2017 at 3:40 pm

It’s not what you know but who you know.

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40 Shazam November 25, 2017 at 6:33 pm

I knew that.

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41 mobile November 25, 2017 at 10:28 pm

In Hollywood it’s not who you know but who has known you.

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42 Harun November 25, 2017 at 4:28 pm

What is a “friend” in these cases?

In my firm, the warehouse manager hires people he knows from Home Depot. These are all “friends” but he hires the ones he knows show up on time, work hard, etc. He can even know that they are “better” than their resume might suggest.

That said, he has also ixnayed some resumes of “friends” who he knows have problems.

The funniest one was a guy who went crazy at Home Depot and ate a bite out of everyone’s sandwiches in the break room fridge. Yeah, that’s a deal breaker.

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43 Faze November 25, 2017 at 6:09 pm

When my stepson rose to managerial level at his business, he quickly hired his best friend and his sister’s boyfriend. And when both turned out to be bozos, he fired them so quickly their heads spun – and without apology or remorse. That’s when I knew the kid was going to succeed in life. And he has.

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44 Tom T. November 25, 2017 at 6:43 pm

But does he still have any friends?

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