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Copyright 1997 by the Wyoming Department of Employment, Research & Planning


Is Race a Determining Factor in Average Wage Differences at the State Level?

A Comparison of 1995 Wages, Worker Racial Distributions and Populations for All States

by: Gordon Wolford

Is race a factor in determining the average wage at the state level? Most people would probably agree that this statement is unfortunately true. Certainly one would hope that this is not the case, but statistics continue to indicate that, on average, white workers make more than non-white workers. This article cannot address all of the complex and varied factors that determine the wage a worker will earn (such as longevity, experience, supply and demand, just to name a few). However, it does compare and contrast recently released economic and demographic data for the 50 states, to attempt to discover if race is a determining factor in average wage differences at the state level.

Economic data examined are 1995 average annual wages and annual percent change in wages from 1994-95. The Table is organized in order from the state with the highest wage to the state with the lowest wage. Demographic data included are percent of white workers [see Footnote 1], 1996 total population and annual percent change in population from 1995-96. What relationship, if any, exists between the economic and demographic data? For one thing, the data appears to indicate that states with larger populations (states that are more urban in nature) tend to have both higher wages and a higher percent of black wage earners than rural states. Furthermore, it seems that states which are more racially mixed than the national average (states in which the percentage of white workers is below the national average), tend to have higher overall wages.

Economics

The first two columns of data shown in the Table ("State Rank by 1995 Annual Wage" and "1995 Average Annual Wage for UI Covered Workers [see Footnote 2]") were recently published by the US Department of Labor, Bureau of Labor Statistics. This is the most up-to-date annual wage information available for study.

Among the states, Connecticut ranked highest in average wages for all workers covered by state and federal unemployment insurance ($35,127 per year), while Wyoming’s neighbor to the east, South Dakota, ranked 50th ($19,931 per year). The Cowboy State itself did not fare well, ranking 45th among the 50 states ($22,351 per year), which was well below the US average ($27,845 per year).

In addition to a low ranking in annual average wage, Wyoming also ranked close to the bottom in 1994-95 wage growth (1.3%); again, the Cowboy state was well below the US average (3.4%). New York, which ranked second in wages ($34,938 per year) was first in percent change annual wage growth (4.5%) while Alaska was last (0.1%). Inflation (the cost of living) for all urban consumers was up 2.8 percent annually in 1995. In general, then, average wage increases across the nation exceeded that of inflation from 1994 to 1995, although this was not the case in Wyoming.

In fact, further examination of "1995 Average Annual Wage for UI Covered Workers" (see the Table) indicates that there were ten states, including Wyoming, in which the average worker wage gains did not meet inflation from 1994-95. Among the six states contiguous to Wyoming, only Montana experienced a similar situation where wages fell behind inflation over the year; Montana wage gains (1.5%) were only slightly better than those of the Cowboy state (1.3%).

Demographics

The last three columns of data in the table ("1993 Percent White Workers [see Footnote 1]", "1996 Population Estimate [see Footnote 3]" and "Population Percent Change 1995-96") are available from the US Bureau of Labor Statistics (racial data) and the US Census Bureau (population data). The Census Bureau only recently released the information about state populations and percent change of these populations. In fact, this data was featured in last month’s Trends (refer to the January 1997 issue, "1996 Census Bureau Population Estimates for the United States").

Additional information regarding racial demographics is also readily available from the US Census Bureau. For example, national average household income [see Footnote 4], examined for different racial groups [see Footnote 1], reveals a broad spectrum of wage rates. The highest median household income was found to be in the Asian/Pacific Islander racial group ($40,614 per year), followed by Non-Hispanic whites ($37,178 per year). These were the only two racial groups with median household income over the US national average ($34,076 per year). Hispanic and black household income fell below the national average ($22,860 and $22,393 per year, respectively). By way of comparison, Wyoming’s average household income for the same time period was $31,529 per year.

Historically, according to The Denver Post (December 15, 1996), black and Hispanic household income for the nation as a whole has been below that of the white population. However, new US Census Bureau data indicate that Hispanics saw their median household income drop 5.1 percent from 1994-95. In fact, the Hispanic poverty rate in 1995 (30%) exceeded that for blacks for the first time. The Census Bureau’s Ethnic and Hispanics Statistics Branch suspect that two prime reasons for the drop in wages and increase in poverty rate may be immigration and falling wages for low-paid work (The Denver Post, December 15, 1996).

Putting Economics and Demographics Together

Given these statistics, one might assume that the states with the highest percent of white workers in the employed labor force would tend to have the highest wages. However, as an examination of the Table shows, the states with the higher percentage of white workers [see Footnote 1] have the lowest UI covered wages (with some exceptions). For example, there are 17 states with "1993 Percent White Workers" below the national average (i.e., 17 states were more racially mixed than the nation as a whole) and 11 states which had "1995 Average Annual Wage for UI Covered Workers" higher than the national average; seven of those 11 states were more racially mixed than the US on average. The low-wage states, then, generally do not follow national wage trends in relation to racial group wages. What is the explanation for this apparent paradox?

In the real estate business, you often hear the axiom that the three reasons for determining the price of a house are location, location and location. By the same token, wages across the United States are determined to a large degree by the economy of the individual states, not by the racial makeup of the workers. It would appear that the location of the employee is a major factor in the wages paid for a particular occupation.

As the Table shows, there were 19 states that had an employed labor force that was 86 percent white or less, and seven of these states had covered wages above the national average. Only two of these were in the bottom third (ranked between 33 and 50) in wages among the states. Furthermore, there were 13 states that had an employed labor force that was 96 percent white1 or greater, and all of these had covered wages below the national average. Of the 13, 11 were in the bottom third in wages among the states.

In the bottom ten states in terms of annual wages, Mississippi indicated the lowest number of white workers. The 1995 annual average wages of Wyoming and Mississippi are an interesting comparison, considering their close wage rankings (45th and 47th, respectively). Wyoming workers are 98 percent white, compared to 68 percent in Mississippi. Almost a third (32%) of the workers in Mississippi are black, yet the average 1995 wage in Mississippi ($21,120 per year) was only 5.5 percent less than Wyoming ($22,351 per year). New Mexico, with the largest percent of Hispanic workers (30%) had a 1995 annual average covered wage of $22,960; this is 2.7 percent higher than that of Wyoming. In addition, wage growth in both Mississippi and New Mexico exceeded that of Wyoming from 1994-95.

While wages did tend to be higher in states with large populations, there were exceptions. July 1996 US Census Bureau estimates indicate that there were seven states--in addition to Wyoming--which have total populations of less than one million. Of those, only Alaska and Delaware had 1995 wages above the national average. Two (Rhode Island and Vermont) had wages higher than Wyoming but below the national average. The remaining three, (Montana, North and South Dakota) had wages lower than Wyoming, ranking in the bottom three states. Wyoming, at 481,000, continues to be the least populated state.

Conclusion

Admittedly, all of the aspects that contribute to how much--in terms of wages--an employee will make cannot be addressed in an article such as this. However, it has been demonstrated that a simple comparison of economic and demographic data shows indications that, at the state level, race does not appear to be a major determining factor in average wage differences. Of course, there are many different factors that have even more effect on wages than location, such as longevity, experience, education and skills.

Also, subjects such as cost of living differences among the states were not fully discussed because of a lack of data. Most would agree that Wyoming has a relatively low cost of living, compared to urban areas, which would offset the higher wages and living costs in populated areas, at least to some degree. How the "cost adjusted" standard of living of the average Wyoming worker compares with Connecticut, for example, is unclear without further research, as are other factors which affect wages.


Gordon Wolford is a Senior Statistician specializing in Local Area Unemployment Statistics (LAUS) at Research & Planning.


Footnote 1: "White Workers" includes Hispanics. Data for all states listing separate employment of black and Hispanic races were not available because of limited sample size. For example, there is no information available specifically about black employment in Wyoming. Source: US Bureau of Labor Statistics, Geographic Profile of Employment and Unemployment, 1993.

Footnote 2: "UI Covered Workers" includes workers covered by Unemployment Insurance and Unemployment Compensation for Federal Employees. This definition of covered employment excludes the self-employed (the largest non-covered category), unpaid family workers, nonprofit institutions, and most domestic household workers. Source: US Bureau of Labor Statistics.

Footnote 3: Population estimates for July 1, 1996. Source: US Census Bureau.

Footnote 4: Household income is the total income of all individuals who dwell under the same roof and compose a family.


Next month in Trends:
"How Education and Population Density Affect Average Wages at the State Level" (a rejoinder to the preceding article). Also featured next month: "Analysis of Job Seekers by Occupational Code" (a study of the job skills of Employment Resource Center applicants).



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