Discrimination in the Labor Market

1. Discrimination in the Labor Market Notes for Week 6 ECO336

2. On average, women earn less than men • The female-male ratio for usual weekly wages has increased from 0.56 in 1969 to 0.74 in 1999. • The gender wage gap is now at 0.77 across all industries and occupations.

3. What Explains the Wage Gap? It is not obvious. Three competing possibilities: • The gap is potentially explicable by gender differences in observed or unobserved characteristics that affect earnings • Pay differences arise from different choices/preferences or • The gap is due to discrimination in the labor market.

4. What does this mean? • Observed or unobserved differences?

5. Definition of Discrimination • When two equally qualified individuals are treated differently solely on the basis of group membership (gender, race, age sexual orientation, disability, etc). • If LM discrimination exists: it is expected to adversely affect the economic status of women directly by producing differences in economic outcomes between men and women that are not accounted for by differences in productivity related characteristics or qualifications. • If such gender differences in treatment of equally qualified men and women are widespread and persistent, the behavior of women themselves may be adversely affected. What does this mean?

6. What does economics tell us? Economic theory does not provide unambiguous guidelines. • Competitive markets should eliminate discrimination

7. Competitive Models? • Markets aren’t always competitive and market power, tastes for discrimination etc. give rise to the possibility that discrimination can persist.

8. Other Discrimination Models • Becker’s Taste For Discrimination • Statistical Discrimination • Institutional Model

9. Taste For Discrimination • Under this model: • may be wage differential between equally qualified male and female workers • since less discriminatory employers will hire more women workers, workers may be segregated by firm • employer tastes for disc may vary across occupations, occ seg can occur

10. Statistical Discrimination • If, on average, certain groups have certain traits, then we tend to assume that if you are a member of that group then you will have that trait. • Is this fair?

11. Institutional Model • Internal Labor Market • Primary and Secondary Jobs • Core v. Periphery

12. Feedback Effects • direct and indirect effects of discrimination – adversely affect the economic outcomes of women compared to men.

13. Statistical Analysis of Wage Gap • See page 251 Blau/Ferber/Winkler

14. Government Response? • Govt policies to combat LM disc can be justified on two grounds: • equity or fairness • inefficient allocation of resources

15. Federal Equal Employment Opportunity Laws Title VII of the Civil Rights Act of 1964: the centerpiece of federal employment discrimination law. This law prohibits employment discrimination by employers, unions, and employment agencies on the basis of race, color, religion, sex, or national origin. Note also that sexual harassment is prohibited.

16. A bit of trivia • The prohibition on sex discrimination was added by Howard W. Smith, a powerful Virginian Democrat who chaired the House Rules Committee and who had strongly opposed the Civil Rights Act. The addition of "sex" to title VII is commonly described as a cynical attempt to defeat the bill by inserting objectionable amendments.

17. Trivia continued • Representative Carl Elliott of Alabama later claimed, "Smith didn't give a damn about women's rights...he was trying to knock off votes either then or down the line because there was always a hard core of men who didn't favor women's rights," and the Congressional Record records that Smith was greeted by laughter when he introduced the amendment.

18. Pregnancy Discrimination Amendment To Title VII ruled that sex includes “pregnancy, childbirth or related medical conditions,” and requires that employers treat pregnancy and childbirth the same as any other condition similarly affecting the ability to work.

19. Equal Pay Act EPA 1963: requires that men and women who perform equal work within a particular establishment receive equal pay unless justified by a system of seniority, a merit or production system, or “any other factor other than sex.”

20. Family Medical Leave Act FMLA 1993: allows employees of firms with more than 50 employees up to 12 weeks of unpaid leave in a 12-month period for birth or adoption of a child, to care for a family member, or for own health.

21. Can An Employer Ever Legally Make Decisions Based on Group Membership? Yes! • When group membership is essential for job performance or • As part of an affirmative action plan.

22. BFOQ Bona Fide Occupational Qualification This condition is interpreted narrowly and must go to the essence of the employer’s business. It is not enough for the employer to claim they would make more money by discriminating, or that customer preference or customer discrimination forces them to discriminate.

23. BFOQ and the Airlines Diaz v. Pan American World Airways, Inc. (1971) Pan Am argued that business needs required them to hire only women flight attendants since they provide a soothing atmosphere preferred by male air travelers.

24. Wilson v. Southwest Airlines Co. (1981) Southwest Airlines claimed that it was necessary for business purposes for their flight attendants to be dressed in provocative uniforms. The courts found neither of these explanations justified BFOQ.

25. Affirmative Action Programs Three legally distinct forms of AA plans: • Executive Order 11246 of 1965: requires employers holding federal contracts to have a written AA plan, which requires setting goals and timetables to correct underutilization of minorities. • Courts can order AA plans to remedy prior discrimination • Employers can voluntarily institute AA plans.

26. Legal Theories of Discrimination Title VII claims are filed under one of two theories of discrimination: • Disparate treatment (intentional discrimination) • Disparate impact

27. Disparate Treatment The employer simply treats some people less favorably than others because of their race, color, religion, sex, or national origin. Proof of discriminatory motive is critical. Generally individual claims.

28. Disparate Impact Involve employment practices that are facially neutral in their treatment of different groups but in fact fall more harshly on one group than another and cannot be justified by business necessity. Proof of discriminatory motive is not required. May be class action suits where the plaintiff alleges pattern and practice of discrimination.

29. Legal Remedies? Until recently only making an individual “whole”: restoring the individual to the condition they would have been in but for the discrimination. Includes: back pay, hiring, promotion, reinstatement, etc.

30. Disparate Impact Examples Height and weight minimums for prison guards, which are met by fewer women than men. Informal recruitment such as recommendations from current employees.

31. Conclusion, Informal Writing Assignment • Discuss some explanations for the wage gap between men and women. • What do you think is most plausible and why?