Industrial Change, the Boundary of the Firm, and Racial Employment Segregation

Racial employment segregation between large workplaces in America has grown over the last generation. We know little about how changes in patterns of employment by economic sector have contributed to this growth, though. While there are many stylized narratives about how industrial change may have affected employment segregation, there are fewer testable predictions or ways to reconcile those narratives. We argue that Theil’s information statistic provides a way to compare changes within and between industries or other sub-groups in a common framework. Changes in Theil’s H can be decomposed into changes in relative size, relative diversity, and relative segregation, which are precisely the mechanisms on which most stylized narratives rely. We explain permutation-test methods for summarizing changes in these factors across six major economic sectors over time. We test these methods using four decades of longitudinal data on establishment workforce composition from the Equal Employment Opportunity Commission.