Access to Financing and Racial Pay Gap Inside Firms

Janet Gao, Wenting Ma and Qiping Xu

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: How does access to financing influence racial pay inequality inside firms? We answer this question using the employer-employee matched data administered by the U.S. Census Bureau and detailed resume data recording workers’ career trajectories. Exploiting exogenous shocks to firms’ debt capacity, we find that better access to debt financing significantly narrows the earnings gap between minority and white workers. Minority workers experience a persistent increase in earnings and also a rise in the pay rank relative to white workers in the same firm. The effect is more pronounced among mid- and high-skill minority workers, in areas where white workers are in shorter supply, and for firms with ex-ante less diverse boards and greater pre-existing racial inequality. With better access to financing, minority workers are also more likely to be promoted or be reassigned to technology-oriented occupations compared to white workers. Our evidence is consistent with access to financing making firms better utilize minority workers’ human capital.

Keywords: Racial Inequality; Diversity; Financing Friction; Access to Debt. (search for similar items in EconPapers)
JEL-codes: G3 J31 J71 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2023-07
New Economics Papers: this item is included in nep-cfn, nep-hrm and nep-lma
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Citations: View citations in EconPapers (1)

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https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-36.pdf First version, 2023 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:23-36

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