Standard econometric analysis incorporates racial classification as an exogenous binary variable. However, econometric specification of racial identity by a simple binary variable masks differences in the meaning and use of racial/ ethnic identity across social groups. Consider an analysis of earnings differences between nonHispanic whites and Hispanics. A white/brown dichotomous variable in the earnings equation is clearly inappropriate since a large fraction of Hispanics either self-identify as white (regardless of how they are seen by others) or have physical features that are indistinguishable from non-Hispanic whites (though they may self