Cognitive Skill, Skill Demands of Jobs, and Earnings among Young European American, African American, and Mexican American Workers

Abstract

Do the cognitive skills possessed by an individual affect access to more cognitively demanding occupations and hence to the associated higher earnings? To what extent do differences between African Americans, U.S.-born Mexican Americans, and European Americans (Whites) in average cognitive skills account for the lower-skilled jobs and lower earnings of African Americans and Mexican Americans? From analyses of 1991 National Longitudinal Survey (NLSY) data for six groups defined by ethnicity and gender, we found that individual cognitive skill level (as assessed by standardized test scores) affects access to occupations requiring more cognitive skill, and affects wages levels, even when controlling for education, work experience, and other factors. Most of the effect of cognitive skills on earnings is direct; a smaller portion is indirect, through access to occupations requiring more cognitive skill. The lower average cognitive skill levels for African Americans and Mexican Americans explain a substantial proportion of the earnings gaps between these groups and European Americans. By contrast, cognitive skills explain none of the gender gap in pay within ethnic groups. We conclude that to understand or alter racial or ethnic inequalities in earnings, scholars and policy-makers must attend to social sources of group differences in cognitive skills, such as school, family, and neighborhood experiences.