Privatization, City Residency, and Black-White Earnings Differentials: Evidence from the Public Transit Sector

Becker's theory on the economics of discrimination suggests that enhanced competition creates a business environment that discourages employers from paying racial earnings differences. This study tests this hypothesis by examining black-white earnings differentials for public transit bus drivers for pre- and post-privatization periods. The findings reveal an erosion of the racial earnings differential in the post-privatization period which is consistent with the Becker hypothesis. Public transit black union drivers earned more than their white counterparts prior to privatization. City residency accounts for 36 percent of this premium. However, the city-residency earnings advantage and the black-white union premium declinedappreciably in the post-privatization period.