Wage Gaps by Race: Its History, Importance, and Impact

With much of its early history rooted in the free labor of enslaved Africans and Native Americans, income inequality in the United States is substantially older than the country itself. Efforts to close these wage gaps are far more recent.

Understanding the Wage Gap

The Cambridge Dictionary defines a wage gap as "the difference between the average pay of two different groups of people." Consistent income inequality can lead to a population group or groups amassing more wealth than others. Among the organizations that track these kinds of wage gaps are the Federal Reserve, the Economic Policy Institute, and the Urban Institute.

Some pay gaps can be explained by educational differences and geographic location factors. However, even when you control for such factors, wage disparities remain prevalent. Intentional, system-wide laws and practices underlie these differences and have played a role in creating them.

For example, several deregulatory legal edicts, including the Commodity Futures Modernization Act of 2000, created a high-risk economic environment that eventually led to a sudden, massive withdrawal of credit that ultimately resulted in the Financial Crisis of 2007–08, further exacerbating existing inequalities. Discriminatory recruitment practices have also played a prominent role in perpetuating wage gaps, particularly with regard to high-paying professions. For instance, African Americans are underrepresented in science, technology, engineering, and math careers.

According to a 2018 study from the Pew Research Center, 72% of Black STEM (science, technology, engineering, mathematics) professionals cite discrimination in recruitment, hiring, and promotions as a major causative factor. Also causative and earlier in the process: 77% of these professionals report being less likely to have access to quality education that prepares them for these careers—another result of the nation's income inequality and the unequal educational system that property-tax-based school funding produces.

Laws Governing Wage Discrimination

The key law, Title VII of the Civil Rights Act of 1964, is about 60 years old. It banned compensation discrimination due to "race, color, religion, sex or national origin." Then, in 2009, came the Lilly Ledbetter Fair Pay Act, which amended prior changes to several federal laws protecting workers' rights and clarified that all inequitable, discriminatory payments are illegal, regardless of how long those pay decisions or practices occurred.

Passing laws is an important step toward societal change, but often, these laws do not produce or complete that change. That's not to say there hasn't been any progress. But such progress has not reached all groups or been experienced equally. For instance, Native American wage growth and employment continue to decline—factors contributing to a high poverty rate (one out of three) and an annual median income of only $49,906 annually. Additionally, over the majority of the last 60 years, African Americans have experienced recessionary-level unemployment rates and widespread residential segregation.

Despite everything that has changed over the past 60 years, substantial discriminatory earning gaps among various population sectors persist. The largest wage gap by far is by race.

Wage Trends by Race and Gender

There are notable wage gaps among American workers by race. Those of Asian ancestry have a higher weekly median income than White, Black, and LatinX individuals, according to the Bureau of Labor Statistics data for Q2 of 2023. In addition, men generally earn more than women.

Black and LatinX workers have the lowest weekly median income, with Black men and women making more than LatinX men and women, respectively. This has obvious consequences: According to our research, Black and LatinX families were twice as likely to have no wealth (or debt), according to a 2021 study from the Federal Bank of St. Louis.

Note also that the higher earnings of some Asian Americans don't mean that all Asian Americans earn more. According to the Department of Treasury, there is much greater wealth inequality among Asian Americans than among White Americans. Non-wealthy Asian Americans are poorer than their White counterparts, and wealthy families are richer.

White workers make up the largest segment of the U.S. job market, and Asian Americans the smallest.

Does Education Help?

So what happens to the wage gap if you control for education? Does it shrink or go away? The answer shows a complex picture. For instance, median annual earnings for workers with a bachelor's degree or higher in 2016 followed a nearly identical pattern to the overall median weekly income chart above.

Asian workers earned the most, followed by White, Black, and LatinX workers. In all cases where educational attainment was limited to an associate's degree or less, White workers earned more than Asian ones. Similarly, Black workers with an associate's degree or lower earned less than LatinX or Asian workers.

Education does make a difference: The gaps are narrower than they are for workers overall when a constant amount of experience and identical job titles are accounted for, though it once again follows the overall pattern. Between 2017 and 2019, Black men earned "98 cents for every dollar earned by men of other races with the same experience and education doing the same job in the same location," according to 2020 research from SHRM (the Society of Human Resources Management). This results in 99 cents for Latinos, $1 for White men, and $1.02 for Asian men.

Similar research shows a deeper earnings divide across job titles between men and women, particularly for Black women. In 2016, the National Women's Law Center found that Black women in low-wage occupations earned approximately $21,700 annually, compared to $36,000 annually for White men in the same positions. The study reported that in terms of higher-paying jobs, "such as lawyers, engineers, and physicians or surgeons," Black women earned approximately $70,000 annually, compared to $110,000 annually for White men in the same positions.

The Opportunity Gap

Looking deeper at the origins of the wage gap, one encounters another socioeconomic divide that affects a person's earning potential: The opportunity gap. This concept "refers to the ways in which race, ethnicity, socioeconomic status, English proficiency, community wealth, familial situations, or other factors contribute to or perpetuate lower educational aspirations, achievement, and attainment for certain groups of students." It has obvious professional consequences clearly connected to income inequality.

Gap Contributors

One clear part of the opportunity gap is the unequal distribution of social capital based on people's personal relationships and networks across different classes, races, and other groups. Upward economic mobility can be difficult without access to social networks that connect and interact with high-earning individuals and/or institutions. Simply put, having friends, family members, or other social connections in high places makes it easier to secure job opportunities, such as by having a contact willing to provide referrals to potential employers.

Further contributing to the opportunity gap are the ways people are recruited into particular fields and which groups benefit from them. For instance, high-paying careers, such as the majority of STEM professions, typically require some form of post-secondary education. Research published in the International Journal of STEM Education notes that a lack of peers, senior mentorship, and culturally relevant educational programming has been shown to discourage minority students from completing their STEM programs.

Then, as the Pew study showed, there's the sheer racism in the job market encountered by those seeking employment. For instance, a 2016 study by researchers at the University of Toronto and Stanford University reported that resumes were 30% to 50% less likely to lead to job callbacks from employers if they contained "minority racial cues," such as names typically associated with Black or Asian identities. The researchers went on to replicate those findings in a 1,600-resume study of their own.

Occupational Segregation and Unemployment

Another aspect of the racial income gap is occupational segregation, which occurs when a demographic group is overrepresented or underrepresented across and within certain occupations. For example, Black men are more often employed in lower-paying industries than White men, who are far more likely to occupy high-paying senior positions. Of all the Fortune 500 CEOs in 2023, only 1.6% were Black.

And finally, unemployment plays a major role in income disparity: A December 2019 study comparing Black and White workers from the Center for American Progress reports that the employed share of Black workers between November 2018 and October 2019 was 75.7%. The figure for White workers during the same period was 80.8%.

The Bottom Line

Despite ever-increasing efforts to promote equal opportunity and diversity within the U.S. labor market, race and gender discrimination remain pervasive. If companies are truly committed to fostering real social change, a good place to start is by eliminating any bias that prevents everyone from being paid a fair and equitable wage for their work.