An establishment level test of the statistical discrimination hypothesis

This article explores the basic assumption of statistical discrimination th eory which holds that women and minorities earn lower wages because they on average, have lower productivity. Employer exploitation of women and minor ities and social closure by advantaged employees are advanced as alternativ e explanations for the lower wag es of women and minorities. The authors fi rst demonstrate that there are substantial gender and racial wage penalties net of human capital for a sample of employees. The primary analysis focus es on the sample of private-for-profit establishments in which these indivi duals are employed Establishment productivity as well as aggregate salaries and wages and profits are regressed on the sex and race composition of the establishment with other factors that may influence establishment producti vity. Findings show that neither the sex nor race compositions of the workp lace are associated with productivity. The authors Interpret the results to be most consistent with a social closure account of gender and racial earn ings inequality.