Latino workers in Texas are on the short end of two pay gaps. They earn substantially lower wages than the state's non-Hispanic white workers. They also earn less than Latinos working in other parts of the U.S. ; In the fourth quarter 2009 issue of Southwest Economy, we identified lower educational attainment and such characteristics as immigrant status and country of origin as key factors in explaining Texas Latinos' relatively low wages. We now want to dig deeper into the Latino pay gaps. Two key questions remain unexplored. First, can we quantify the educational and demographic factors' relative contributions to the Latino wage gaps? Second, what role does occupational choice play in Texas Latinos' lower earnings? ; We find that education explains more than half of the Latino pay gap vis-a-vis non-Hispanic whites in the state and 20 percent of the gap vis-a-vis Latinos outside Texas. English fluency and state-level characteristics--such as cost of living, geography, history and institutions--likely account for much of the remaining wage deficit of Latinos in Texas. We also find that occupational choice explains some of the wage gap within Texas but little to none of the disparities across states.Wages ; Hispanic Americans ; Education - Economic aspects ; Texas

Emily Kerr

Madeline Zavodny

Pia Orrenius

English

Research Papers in Economics

SouthwestEconomy    FEDERAL RESERVE BANK OF DALLAS • FiRSt quARtER 2010 10
Education explains more than 
half of the Latino pay gap   
vis-à-vis non-Hispanic   
whites in the state and 20   
percent of the gap vis-à-vis 
Latinos outside Texas.
Texas’ Latino Pay Gaps:
Taking a Closer Look
By Emily Kerr, Pia Orrenius and Madeline Zavodny
S E C O N D   O F   T W O   PA R T S Latino workers in Texas are on the short 
end of two pay gaps. They earn substantial-
ly lower wages than the state’s non-Hispanic 
white workers. They also earn less than Lati-
nos working in other parts of the U.S.
In the fourth quarter 2009 issue of South-
west Economy, we identified lower educa-
tional attainment and such characteristics as 
immigrant status and country of origin as key 
factors in explaining Texas Latinos’ relatively 
low wages. We now want to dig deeper into 
the Latino pay gaps. Two key questions re-
main unexplored. First, can we quantify the 
educational and demographic factors’ relative 
contributions to the Latino wage gaps? Sec-
ond, what role does occupational choice play 
in Texas Latinos’ lower earnings?
We find that education explains more 
than half of the Latino pay gap vis-à-vis non-
Hispanic whites in the state and 20 percent of 
the gap vis-à-vis Latinos outside Texas. Eng-
lish fluency and state-level characteristics—
such as cost of living, geography, history and 
institutions—likely account for much of the 
remaining wage deficit of Latinos in Texas.
We also find that occupational choice ex-
plains some of the wage gap within Texas but 
little to none of the disparities across states.
The Gap Within Texas
To get a closer look at the earnings 
differential within Texas, we rely on the 
Census Bureau’s Current Population Survey 
(CPS).1 The data suggest that for the past 
decade and a half, Latinos’ weekly wages 
have been 46 percent lower on average 
than wages of non-Hispanic whites.2 
This is the unadjusted wage gap for 
all Latinos (Table 1). The gap is wider for 
Latino immigrants, who earn 58 percent 
less than non-Hispanic whites. It’s narrower 
for native-born Latinos, who earn 38 per-
cent less. It’s puzzling that such substantial 
wage inequality exists among natives since 
second-generation or higher Latinos are all 
U.S. citizens and are largely fluent in Eng-
lish.
Differences in age, sex and marital sta-
tus have very little impact on the wage gap 
for Latinos vis-à-vis non-Hispanic whites. 
After accounting for these demographic 
characteristics, the wage gap for all Latinos 
remains largely unchanged at 45 percent. 
However, education matters quite a lot, 
Table 1
Over Half of Latino Wage Gap in Texas Is Due to Lower Education
Remaining wage gap for Latinos vis-à-vis non-Hispanic whites in Texas (percent)
All Latinos Native-born Latinos Immigrant Latinos
Unadjusted –46 –38 –58
Adjusted for
Age, sex, marital status –45 –33 –62
Add education –20 –15 –30
Add citizenship, immigrant status –17 n.a. –24
NOTE: We use the log of real weekly wages among Texas workers ages 20–64 as the dependent variable in least squares regressions on the 
Latino dummy variable (row 1), adding demographics (row 2), education (row 3) and immigration variables (row 4). In each case, the wage gap 
is the coefficient on the Latino dummy variable.
SOURCE: Authors’ calculations using 1994–2009 Current Population Survey data.  FEDERAL RESERVE BANK OF DALLAS • FiRSt quARtER 2010 SouthwestEconomy 11
accounting for more than half of the earn-
ings gap in Texas. Controlling for differenc-
es in educational attainment, the wage gap 
between Latinos and non-Hispanic whites 
shrinks from 45 percent to 20 percent.
This reflects the wide differences in 
educational outcomes. Forty percent of Tex-
as Latinos age 25 and older didn’t graduate 
from high school, compared with 5 percent 
for non-Hispanic whites. Only 11 percent of 
Latinos earned college degrees, well below 
the 38 percent for non-Hispanic whites. 
(The “On the Record” conversation with 
Pew Hispanic Center’s Richard Fry on page 
8 features a wide-ranging discussion of the 
Latino gap in educational outcomes.)
Some of the remaining wage differ-
ences between Latinos and non-Hispanic 
whites in Texas can be explained by dif-
ferent attributes of Latino immigrants, such 
as U.S. citizenship. Factoring in differences 
in these characteristics further shrinks the 
gap in overall Texas Latinos’ earnings to 17 
percent. Accounting for the fact that many 
Latino immigrants are not citizens leaves 
an adjusted wage gap of 24 percent for 
foreign-born Latinos. The larger immigrant 
wage gap, as compared with the native La-
tino wage gap, is most likely due to a lack 
of English fluency, which we cannot control 
for in the comparison because this variable 
is not included in the CPS data. 
The Gap With the U.S.
We look next at the wage gap between 
Latinos in Texas and the rest of the U.S., 
starting with the native-born. They constitute 
the majority of Latinos in Texas but earn 17 
percent less than native Latinos in the rest of 
the U.S. (Table 2).
As with the in-state wage gap, differenc-
es in age, sex and marital status are largely 
irrelevant. Lower educational attainment in 
Texas is a contributing factor, but the wage 
gap only shrinks to 13 percent when we 
control for differences in schooling.
For Texas’ Latino immigrants, the unad-
justed wage gap is 12 percent. Once again, 
basic demographic characteristics play a 
negligible role. The impact of education is 
comparable to native-born Latinos, explain-
ing less than a third of the wage differential 
between foreign-born Latinos in Texas and 
other states. After controlling for age, sex, 
marital status, education and citizenship, 
the wage deficit among Latino immigrants 
in Texas shrinks to 9 percent. Among all 
Latinos, the adjusted cross-state wage gap 
is 11 percent. Adjusting for differences in 
immigrant status increases the gap because 
so many Texas Latinos are U.S.-born, and 
native-born Latinos earn less in Texas than 
elsewhere.
What explains the remaining gap? It’s 
likely that the cost-of-living differential 
between Texas and other states that have 
large populations of Latinos plays an im-
portant role, but so do the state’s proximity 
to Mexico, long history of discrimination 
and relatively low minimum wage. 
According to the American Chamber 
of Commerce Research Association, Texas 
has the nation’s eighth-lowest cost of liv-
ing.3 California, home to the largest popu-
lation of Latinos, ranks 49th—that is, it has 
the second-highest cost of living. Florida 
and New York, other states with large Latino 
populations, are ranked 30th and 44th. 
With the state’s relatively low cost of liv-
ing, Texas employers can pay workers less. 
The lower wages show up in cross-state 
comparisons, but Texans aren’t necessarily 
worse off because the lower living costs 
translate into higher real wages.
Proximity to Mexico and the border 
wage penalty may also explain some of 
Table 2
Lower Education Contributes to Cross-State Latino Pay Gap
Remaining wage gap for Texas Latinos vis-à-vis U.S. Latinos (percent)
All Latinos Native-born Latinos Immigrant Latinos
Unadjusted –10 –17 –12
Adjusted for
Age, sex, marital status –10 –18 –13
Add education –8 –13 –9
Add citizenship, immigrant status –11 n.a. –9
NOTE: We use the log of real weekly wages among Latino workers ages 20–64 as the dependent variable in least squares regressions on the 
Texas dummy variable (row 1), adding demographics (row 2), education (row 3) and immigration variables (row 4). In each case, the wage gap 
is the coefficient on the Texas dummy variable.
SOURCE: Authors’ calculations using 1994–2009 Current Population Survey data.
Proximity to Mexico and the 
border wage penalty may  
also explain some of the  
wage deficit for Texas Latinos.  FEDERAL RESERVE BANK OF DALLAS • FiRSt quARtER 2010 SouthwestEconomy 12
the Texas wage deficit. About 23 percent 
of Texas Latinos live in border cities, and 
one study found that Mexican immigrants 
working in the region earn 16 percent to 
20 percent less than those who migrated 
into the U.S. interior.4
In theory, this localized earnings pen-
alty should disappear over time—if workers 
are sufficiently mobile. However, Latino 
immigrants may not exercise their mobility 
if they have strong preferences for staying 
along the border for cultural, language or 
geographical reasons.5
Texas has a history of discrimination 
against Latinos, particularly in education. 
Mexican-Americans endured inferior and 
separate schooling for decades, with lasting 
consequences.6 As of the 2005–06 school 
year, Texas was the second-most segregated 
state for Latino students.7 In addition, Lati-
nos have often been pushed toward voca-
tional occupations rather than encouraged 
to pursue more schooling.8
Policy differences may also affect the 
remaining wage gap for both native-born 
and immigrant Latinos. The minimum wage 
is a prime example. While other large 
states with substantial Latino populations 
set minimum wages above the federal rate, 
Texas simply adopts the national standard. 
A relatively low minimum wage helps em-
ployment grow but may also keep wages 
relatively low in entry-level jobs. 
The Jobs Latinos Hold
Does the occupational distribution of 
Texas Latinos provide any clues to the earn-
ings deficit? 
To address this question, we use CPS 
data from 2003–09, a period during which 
consistent occupation codes are available. 
We calculate Latino workers’ relative occu-
pation shares—the fraction of Latino work-
ers in an occupation divided by the fraction 
of non-Hispanic workers in that occupation. 
When the ratios exceed 1, Latinos are over-
represented in that occupation.
For Texas Latinos, we find the highest 
ratios in building and grounds maintenance, 
construction, food preparation, farming and 
fishing, production and transportation (Table 
3). These are largely low-paying jobs that 
don’t require high levels of education.
In higher-paying occupations—such as 
computer, mathematical, life, physical and 
social sciences as well as architecture, legal, 
management, business and finance—ratios 
are far below 1, indicating that Texas Latinos 
are very unlikely to have these occupations. 
Adding occupations to our analysis al-
lows us to measure the effect of job choice 
on in-state wage differences between La-
tinos and non-Hispanic whites. We find 
the wage gap shrinks from 16 percent to 
12 percent, suggesting that occupation ac-
counts for 25 percent of Texas Latinos’ re-
maining earnings deficit (Table 4). 
Turning to cross-state Latino wage 
comparisons, we find that higher shares of 
Texas Latinos work in construction, office 
and administrative support and sales jobs 
(Table 5). They’re also overrepresented in 
education and health sector jobs but less 
likely to be employed in farming and fish-
ing work than Latinos elsewhere. A smaller 
proportion of Texas Latinos hold produc-
tion and food-service jobs.
Despite significant differences in Latino 
occupational choice across states, adding 
this factor to our gap analysis has no effect 
on the cross-state wage gap (Table 4). Add-
ing occupation variables leaves the adjusted 
wage gap at 11 percent.
Table 3
Texas Latinos Overrepresented in Low-Wage Occupations
Occupation
Relative share  
of Latino workers
Building and grounds cleaning and maintenance 4.1
Construction and extraction  3.1
Food preparation and serving 2.5
Farming, fishing and forestry 2.2
Production 2.0
Transportation and material moving 1.6
Health care support 1.4
Installation, maintenance and repair 1.1
Personal care and service 1.0
Office and administrative support .9
Sales and related .7
Protective services .7
Community and social services .6
Education, training and libraries .5
Arts, design, entertainment, sports .5
Health care practitioners and technical .4
Business and financial operations .4
Management  .4
Legal .3
Architecture and engineering .3
Life, physical and social sciences .3
Computers and mathematical sciences .2
NOTE: Shown is the ratio of the share of Latinos in a given occupation category to the share of non-Latinos in a given occupation category.
SOURCE: Authors’ calculations using 2003–09 Current Population Survey data.
Table 4
Occupation Affects Latino Wage Gap In-State but Not Cross-State
Remaining wage gap (percent)
Latinos vis-à-vis  
non-Hispanic whites in Texas
Texas Latinos vis-à-vis  
U.S. Latinos
Unadjusted –46 –10
Adjusted for
Age, sex, marital status, citizenship, immigrant status –34 –15
Add education –16 –11
Add occupation –12 –11
NOTE: We use the log of real weekly wages among workers ages 20–64 as the dependent variable in least squares regressions on the 
Latino and Texas dummy variables (row 1), adding demographics and immigration (row 2), education (row 3) and occupation variables 
(row 4). The wage gap is the coefficient on the Latino dummy variable (column 1) and the Texas dummy variable (column 2).
SOURCE: Authors’ calculations using 2003–09 Current Population Survey data.  FEDERAL RESERVE BANK OF DALLAS • FiRSt quARtER 2010 SouthwestEconomy 13
Kerr is a research analyst and Orrenius is a re-
search officer and senior economist at the Federal 
Reserve Bank of Dallas. Zavodny is a professor of 
economics at Agnes Scott College in Decatur, Ga.
Notes
1 We use the outgoing rotation group files of the Census 
Bureau’s Current Population Survey, a large-scale monthly 
poll of about 50,000 U.S. households.
2 This number represents the average wage differential 
for 1994–2009 and is therefore different from the wage 
differential displayed in Table 1 of Part One of this article, 
which represents the average wage differential for 2007–09.
3 Report can be found at www.missourieconomy.org/
indicators/cost_of_living/index.stm.
4 See “Differences Between Mexican Migration to the U.S. 
Border and the Interior,” by Pia M. Orrenius, Madeline 
Zavodny and Leslie Lukens, in Labor Market Issues Along the 
U.S.–Mexico Border, Marie T. Mora and Alberto Dávila, eds., 
Tucson: University of Arizona Press, 2009, pp. 139–59.
5 For further discussion on this topic, see “Changes in the 
Relative Earnings Gap Between Natives and Immigrants Along 
the U.S.–Mexico Border,” by Alberto Dávila and Marie T. 
Mora, Journal of Regional Science, vol. 48, no. 3, 2008, pp. 
525–45.
6 See “Let All of Them Take Heed”: Mexican Americans and 
the Campaign for Educational Equality in Texas, 1910–1981, 
by Guadalupe San Miguel Jr., College Station: Texas A&M 
University Press, 1987. 
7 Calculated as the percentage of Latino students in 90 to 
100 percent minority schools. See “Historic Reversals, 
Accelerating Resegregation, and the Need for New Integration 
Strategies,” by Gary Orfield and Chungmei Lee, The Civil 
Rights Project, UCLA, August 2007.
8 See The Other Struggle for Equal Schools: Mexican 
Americans During the Civil Rights Era, by Rubén Donato, 
Albany: State University of New York Press, 1997.
9 For a more detailed analysis, see “Improving Public School 
Financing in Texas,” by Jason Saving, Fiona Sigalla and Lori 
Taylor, Federal Reserve Bank of Dallas Southwest Economy, 
no. 6, 2001.
10 See “Policy Transparency and College Enrollment: Did 
Texas Top Ten Percent Law Broaden Access to the Public 
Flagships?” by Mark C. Long, Victor Saenz and Marta Tienda, 
Annals of the American Academy of Political and Social 
Science, vol. 627, no. 1, 2010, pp. 82–105.
11 Research suggests the returns to education for 
undocumented immigrants from Mexico are small. See 
“Illegal Immigrants in the U.S. Economy: A Comparative 
Analysis of Mexican and Non-Mexican Undocumented 
Workers,” by Francisco L. Rivera-Batiz, in International 
Migration: Trends, Policy and Economic Impact, Slobodan 
Djajic, ed., London: Routledge, 2001, pp. 180-203.
taged districts, many of which serve mostly 
Latino and other minority students.9
Other educational reforms have targeted 
higher education. For example, a 1997 rule 
guarantees public university admission to 
high school students who graduate in the 
top 10 percent of their classes. Research 
finds the rule, which was implemented after 
race-based quotas were scrapped, has had 
a positive impact on minority enrollment.10
Another law grants in-state tuition to 
undocumented immigrant students. It can 
improve educational outcomes but will not 
pay off in the labor market since these im-
migrants can’t legally work, a constraint 
more likely to be binding in high-wage 
than low-wage occupations.11
All told, most of the Texas Latino wage 
gap relative to non-Hispanic whites in our 
state can be explained by characteristics 
such as education, immigrant status and 
occupational choice. Some characteris-
tics—such as immigrant status—are out of 
reach for state policymakers. But targeting 
educational outcomes would likely pay off 
in reducing occupational inequality and 
increasing Latino wages.
A Permanent Wage Gap?
Part One of this article pointed to 
education as a key factor keeping Texas 
Latinos’ wages low. We have now quantified 
this effect, finding that educational attain-
ment explains 55 percent of the in-state 
Latino wage gap vis-à-vis non-Hispanic 
whites and 20 percent of the gap relative to 
Latinos living in other states. 
The less educated tend to become low-
wage workers. In post-2002 data, taking oc-
cupation into account further narrowed the 
in-state gap vis-à-vis non-Hispanic whites 
by 25 percent, although it did nothing to 
shrink the cross-state gap with other Latinos. 
To a large extent, education and occu-
pation are matters of individual choice and 
institutional responsibility. Improving edu-
cational outcomes of Texas Latinos will give 
them access to higher-paying occupations.
The importance of investing more in 
Latino education hasn’t been lost on Texas 
policymakers. Implemented in 1993, Texas’ 
controversial “Robin Hood” scheme of 
school finance, which redistributes tax rev-
enue from rich to poor school districts, has 
greatly benefited the financially disadvan-
Table 5
Latino Occupational Choice Varies Across Texas, U.S.
Distribution of Latino workers
Occupation All Latinos
Native-born 
Latinos
Immigrant 
Latinos
Texas  U.S. Texas U.S. Texas U.S.
Construction and extraction 14.2 12.8 7.9 6.9 22.9 16.6
Office and administrative support  12.7 11.6 17.8 18.5 5.7 7.2
Sales and related 9.4 8.4 11.5 11.4 6.4 6.5
Production 9.4 10.7 6.9 6.1 12.9 13.7
Transportation and material moving  8.4 8.2 7.7 6.8 9.4 9.2
Building and grounds cleaning and maintenance 9.8 7.9 4.4 4.0 12.8 13.5
Food preparation and serving 7.6 8.4 5.3 5.1 10.8 10.6
Management 5.4 5.4 6.8 7.8 3.4 3.9
Installation, maintenance and repair 4.3 3.5 4.5 3.9 4.1 3.3
Education, training and libraries 3.5 2.7 4.8 4.5 1.7 1.6
Personal care and service 3.0 3.2 3.4 3.7 2.4 2.9
Health care support 2.5 2.1 3.3 2.8 1.5 1.6
Health care practitioners and related 2.3 2.0 3.4 3.3 .8 1.1
Business and financial operations 2.2 2.3 3.2 3.8 .8 1.3
Protective services 1.7 1.5 2.6 2.9 .6 .5
Farming, fishing and forestry 1.2 2.4 .7 .6 1.8 3.6
Arts, design, entertainment, sports and related 1.2 .9 1.1 1.6 .7 .9
Community and social services .9 1.1 1.3 1.9 .4 .6
Architecture and engineering .9 .9 1.2 1.3 .5 .6
Computers and mathematical sciences .8 .9 1.1 1.5 .4 .5
Legal .4 .6 .7 1.1 .1 .2
Life, physical and social sciences .3 .4 .4 .6 .1 .3
NOTE: Shown is the fraction of the Latino workforce in a given occupation category in Texas and in the rest of the U.S.
SOURCE: Authors’ calculations using 2003–09 Current Population Survey data.

Texas' Latino pay gaps: taking a closer look

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Texas' Latino pay gaps: taking a closer look

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