Working Paper

Labor Market Tightness and Minority Earnings Gaps

Abstract: We study how labor-market tightness affects minority earnings gaps using administrative data for US metropolitan areas from 2010 to 2025. After accounting for national shocks, local seasonality, and local trends, a 1-percentage-point unemployment decline reduces the white-minus-minority earnings gap by about 0.2 percentage points for all jobs and 0.3 percentage points for new stable hires. These responses strengthen as slack declines, reaching 0.4 and 0.6 percentage points, respectively, in hot markets. Neither observed worker and vacancy composition nor concurrent policy changes account for these effects. Increased mobility and upgrading across broad job categories explain little of the narrowing, although hiring distributions become more similar between the two groups. Where recruiting is concentrated among fewer employers, the earnings-gap response varies less with slack. Together, the findings point toward relative earnings improvements within labor-market segments and employer competition as a mechanism through which tightness narrows minority earnings gaps.

JEL Classification: J63; J62; J31; J71; J42; E24;

https://doi.org/10.26509/frbc-wp-202634

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2026-11-03

Number: 26-34