Letter to the Editor

In the last issue of Focus on Basics, I presented and discussed the findings from a new study on the economic impact of the GED by Richard Murnane, John Willett, and myself. One of the interesting and troubling findings of that study was that there was a substantial impact of the GED on the earnings of young white dropouts (age 21-26) who passed with scores just at the passing level, but not on the earnings of young nonwhite dropouts with similar scores. I offered several possible explanations for our results. Several subsequent letters to the editor of Focus on Basics suggested that my explanations were dancing around a simple explanation for our findings: employer discrimination in the labor market toward nonwhite job applicants. While I understand the spirit of these responses to the article, I would like to clarify exactly what we can and cannot say with our research.

First, however, some individuals were upset with our use of the term 'nonwhite.' While another designation could have been employed, the term simply derives from data limitations. That is, in our data we were only able to identify white, non-Hispanic individuals as one group, and everyone else as the other group. Thus, the 'nonwhite' group includes African-Americans, Hispanics, Native Americans, Asians, and anyone else who chose a race/ethnicity category other than 'white' on the GED test form.

The central assertion in some of the letters we received concerned the fact that our results seemed to 'prove' the existence of employer discrimination in the labor market. Yet we did not discuss that as an explanation for our findings. The reason that discussion was lacking in the article is that we CANNOT establish with our study the presence of employer discrimination. Let me begin an explanation of that statement with a review of our findings. Our study shows that young white dropouts who were 16-21 when they attempted the GED in 1990, and who just barely passed the GED exams, received a substantial boost in earnings from acquisition of the GED. Furthermore, this boost in earnings was solely due to the labor market signaling value of the credential: employers used the GED as a signal of attributes that they valued but could not directly observe (e.g., motivation, commitment to work, maturity, etc.). However, we did not find that employers similarly valued the credential when it was possessed by the young nonwhite dropouts in our study. On the face of it, this may seem like evidence of racial/ethnic discrimination in the labor market. This interpretation warrants a closer look.

The relevant 'thought-experiment' for our results concerns two hiring situations. In the first, two observationally similar young white dropouts apply for a job, one with a GED and one without. Our results suggest that, in this case, the employer will use the GED as relevant information in her hiring decision, tending to prefer the white GED-holder over the white uncredentialed dropout. In the second situation, two young nonwhite dropouts apply for a job, one possesses a GED and the other does not. Our results suggest that in this situation, the employer does not use the GED as a signal of relevant information, or at least that the employer considers other observable information as more important than the GED in the hiring decision. That is, our data show that the nonwhite GED-holder is no more likely than the uncredentialed nonwhite dropout to be hired.

There is one way that these two thought-experiments' could be construed as evidence of employer discrimination. If discrimination leads employers systematically to relegate young nonwhite dropouts to such low-level jobs that the employer has no need for the information of productive attributes conveyed by a GED, then we would expect no GED effect' on the earnings of nonwhite dropouts. Other work we have done, however, suggests that this is not the case. For example, we find that nonwhites dropouts with and without credentials in our data are employed in jobs where the returns to basic cognitive skills are just as high, and sometimes higher, than the returns to skills enjoyed by white dropouts in our data. This suggests that nonwhite dropouts are employed in jobs where skills do matter and are rewarded.

I am certainly not attempting to argue the absence of labor market discrimination. Subtle and overt acts of discrimination are common in our society. It would be na‹ve to argue that the labor market is immune from discriminatory practices. The relevant question, however, is what can we say about market discrimination with our research, and the answer is very little.

Our results are perplexing. Why do employers seem to value the GED as a signal for white dropouts who are on the margin of passing the GED, but not for nonwhite dropouts who barely pass? The results from our study do not contribute any information to the question of employer discrimination: that is a thought experiment involving a white and an nonwhite dropout showing up for the same job, a scenario not applicable to our study.

-John Tyler