Wages and employment differences between married Asian American and non-Hispanic white women: a 2SLS simultaneous equations approach

Abstract

This study examines wages and employment differences between Asian American (categorized by nativity and Asian ethnicity) and non-Hispanic white wives in a new way. By emphasizing the reciprocal relationship between hourly wages and employment (i.e., hours worked), labor market functions are modeled as a 2-stage least square (i.e., 2SLS) simultaneous equations system that takes into account the endogeneity of wages and employment. This study first implements Hausman’s specification test for the exogeneity of hourly wages and estimates both the OLS and 2SLS models. In addition, it tests hypotheses grounded in human capital/assimilation and wage-employment theories concerning: 1) how educational levels affect hourly wages, and how family factors affect women’s employment decision, ceteris paribus, and 2) how these two causal mechanisms reciprocally result in wages and employment differences across racial groups. The results are clear. The substantial discrepancy between the two models indicates that the endogeneity (or simultaneity) bias in the OLS models is not trivial. The explanatory power of each 2SLS model and the differences in t-ratios across racial groups of the 2SLS results are of much larger magnitude than those of the OLS results. Substantively, this paper finds little evidence that Asian American wives need to have more education or need to work longer hours to earn consistent wages with non-Hispanic white wives.