Mind the Gap: Factors Driving the Growing Racial Wage Gaps and Solutions to Close Them

Executive Summary

Despite efforts to reduce them, wage gaps between White and Black workers in the US^[1] are large and have been increasing over the past decade. Our research suggests there are powerful barriers to reducing these disparities and keeping them from becoming even larger: Black workers are severely underrepresented in industries, occupations, and locations where the fastest growth in high-paying jobs is taking place.

Many factors contribute to wage disparities, including geographical segregation and labor market segmentation, as well as different access to educational opportunities and to social and professional networks. In some instances, individual circumstances that lead people to select particular jobs or professions (e.g., family responsibilities, strong connections with their local communities, etc.) also become an element. In this report, we focus specifically on labor market segmentation and on the underrepresentation of women and Black workers in high-paying industries and jobs.

Our research reveals that after accounting for demographic, geographic, and educational differences, among workers with a bachelor’s degree or higher, Black men earned 18 percent less than White men in 2010. By 2019, that gap had grown to 24 percent, largely due to increased underrepresentation of Black workers in high-paying industries and occupations.

Among workers with at least a bachelor's degree, as of 2019, Black workers are still underrepresented in high-paying occupations and industries, such as the tech sector, and overrepresented in relatively low-paying industries and jobs, such as counselors and social workers. Black workers with a bachelor’s degree are also much more likely to work in jobs that do not require a college degree, such as drivers and security guards.

Compounding these trends, Black workers are especially underrepresented in occupations and industries that have experienced the highest growth in pay in recent years. The tech sector, for example, shows a remarkable increase in the number of top earners in the past decade. However, only 4 percent of top earners in this group are Black, compared to over 6 percent in other industries. Among top earners in software development, only 3.3 percent are Black.

Given that most of the fast-growing tech hubs are located in western cities with small Black populations—including San Francisco, Seattle, Austin, and San Jose—tech companies trying to recruit Black workers may face a unique challenge: the share of Black workers among top earners in the tech sector was just 2.3 percent in the Austin metro area, 2 percent in San Francisco, 1.6 percent in Seattle, and just 0.8 percent in San Jose.

Relocation is not always an option for candidates, and this limits organizations’ ability to attract, recruit, and retain diverse talent. The high cost of living in many tech hubs is an important barrier. However, in metro areas with large Black populations, the share of Black tech workers tends to be much higher. For example, in Atlanta and Washington, DC, the share of Black workers among top earners in the tech sector is 12 percent and 13 percent, respectively.

Changing modes of production amid the pandemic pose a potential, though partial, solution: employers are more open to remote workers, meaning they can cast a wider net when recruiting talent, to help achieve diversity goals. In a recent survey, organizations reported they are more willing to hire remote workers (87 percent of respondents compared to just 52 percent before the pandemic). And 25 percent of surveyed organizations are willing to hire 100 percent virtual employees anywhere in the US, 7 percent even globally, compared to a combined 5 percent before the pandemic.^[2]

The issue of underrepresentation of Black workers in the tech sector is not new. Earlier in the decade, several high-profile tech companies publicly recognized the problem. Additionally, CEOs indicate they desire to do more to diversify their ranks. According to the C-Suite Challenge™ Survey conducted by The Conference Board in late 2020, US CEOs believe recruiting a more diverse workforce and building a more inclusive culture are among the top human capital management issues for 2021. Acknowledging a problem is an important step toward solving it. In 2020, some leading tech companies made public commitments to significantly raise diverse representation, including their share of Black workers.^[3]

By opening up more roles for remote work across the US, including for high-paying and executive positions, tech companies have an opportunity to better diversify their workforces and help narrow the wage gap between Black and White workers.

These will be good first steps, but there is a long way to go. Hence, it will be critical for CEOs to remain focused on racial wage gaps as a priority to help close these gaps in the near future. 

Insights for What’s Ahead

By the time people enter the labor market, their likelihood of having a high-paying career is already informed by large gaps in educational and other opportunities that disproportionally disadvantage Black workers. Organizations across industries can reduce wage disparities and underrepresentation in high-paying jobs and tackle the many barriers that contribute to these disparities. A multipronged approach that addresses wage gaps internally, as well as supports progress toward pay equity in society at large, may include efforts such as:

1. Monitoring diversity, equity & inclusion (DEI) metrics consistently throughout the organization to identify gaps and opportunities;
2. Increasing diversity of underrepresented groups: the new willingness to work flexibly and hire remote workers could help employers located in areas with small Black populations hire Black workers anywhere in the US, and adjusting the geography of recruitment to target Black workers can make a difference;
3. Increasing diversity by opening operations in cities with high shares of Black talent;^[4]
4. Expanding recruiting channels: companies can search for talent at Historically Black Colleges and Universities, or partner with affinity groups on campuses to create pipelines, rather than relying on a select group of elite universities;
5. Identifying and addressing barriers to talent mobility or advancement to senior leadership and higher-paid roles within the organization; and
6. Investing in community and educational partnerships and alliances that bridge opportunity gaps.

Pay equity and fair compensation and hiring practices benefit organizations by strengthening economic and business outcomes^[5] and aligning with investor, customer, and other stakeholder expectations. In addition, many organizations are now considering efforts to increase pay transparency and address potential pay inequities as a way to improve their cultures, processes, and practices.^[6] Deploying these strategies can help companies contribute to reducing racial wage gaps.