lbo-talk-digest V1 #499

Mike Yates mikey+ at
Thu Oct 15 09:16:21 PDT 1998


I would add that, even if we use the demand/ supply model of the neoclassicals and try to eliminate the gap between the wages, say of black and white workers, by holding constant all of the supply/demand determinants (education, training, preferences for leisure, etc.) and we are still left with a residual, it would be a mistake to consider this residual the only representation of racism. The supply/demand determinants themselves (e.g. education)are different no doubt because of prior discrimination. I am inclined to think that all of the differences between men and women and blacks and whites are due to sexism and racism.

michael yates Heather Boushey wrote:
> Message text written by INTERNET:lbo-talk at
> >Date: Wed, 14 Oct 1998 15:48:05 -0400
> From: Doug Henwood <dhenwood at>
> Subject: Re: unobserved skill
> alec ramsdell wrote:
> >Galbraith cites a study by Chinhui Juhn, Kevin Murphy, and Brooks Pierce
> >that separates "three distinct patterns of rising inequality, of
> >approximately equal importance." The third is "unobserved skill," a
> >category in the discussion of income inequality, originating in the late
> >60s. Can anyone explain this category a little? Galbraith calls it the
> >"mysterious third factor," that it's "a residual unattributable to any
> >measureable characteristic." Is anyone familiar with the study
> >Galbraith cites? If unobserved skill isn't amenable to measurement (of
> >what kind, I guess is the quesiton), what kind of explanatory or
> >analytic power does it have?
> That's the classic econometrician's dodge - when you've got something you
> can't explain with your regressions, attribute it to some "unobserved"
> factor. In productivity work, it's always "technological change"; in the
> labor markets, it's "unobserved skill"; in finance, it's "noise." Josh
> Mason told me that someone - perhaps Will Milberg, but he wasn't sure -
> said at a New School/CEPA seminar last year that hegemony consists in being
> able to name the residual.
> Doug<
> I would like to add to (possibly) Will Milberg's excellent characterization
> of the naming of "unobservable skill" which in the Juhn, Murphy, and Pierce
> piece, seems to be the case. They identify an "enormous increase in wage
> inequality among male workers" and they attribute it to "increases in the
> premia on both unobserved and observed (such as education) dimensions of
> skill, with the majority of the increase over the period due to the
> unobserved component" (p. 411). Essentially, what they are saying is that
> they don't know why the wage premium for college educated workers rose
> between 1963 and 1989. Much of their problem is that their economic
> paradigm does not allow them to look beyond human capital, or other
> "microeconomic" measures, to understand wage determination. In their basic
> model, wages are determined by the worker's marginal product. Thus, if the
> "observed" skills can't explain wages, then "unobserved" must. Of course,
> another way of approaching this question, which is what Galbraith does, is
> to look to structural factors and macroeconomic fluctuations..
> It is important to note that this line of reasoning rears its ugly head
> most often in the study of wage differential between men and women and
> between African American and white workers. The literature on racial
> inequality has recently been inundated with papers discussing the lack in
> "unobserved skills" held by African American workers. Since we can't
> explain why African Americans earn less (unless we turn to a theory of
> racism in labor markets), we must see it as the fault of the African
> American worker's themselves (i.e., "their" educational credentials aren't
> "worth" as much as white workers, etc.)
> Heather Boushey
> Research Department
> NYC Housing Authority
> 250 Broadway, Room 711
> New York, NY 10007
> (p) 212-306-3372; (f) 212-306-6485
> hboushey at

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