Chapter 9 Labor Market Discrimination

1. Chapter 9 Labor Market Discrimination God, what gorgeous staff I have. I just can’t understand those who have ugly people working for them, I really can’t. Just call me a pathetic aesthetic. —Jade Jagger (Mick’s daughter)

2. 9.1 Gender and Racial Differences • Ratio of Female to Male Hourly Earnings

3. 9.1 Gender and Racial Differences • Ratio of African-American to White Weekly Earnings

4. 9.1 Gender and Racial Differences • Unemployment Rate

5. 9.1 Gender and Racial Differences • Occupational Distribution by Gender, 2006

6. 9.1 Gender and Racial Differences • Occupational Distribution by Race, 2006

7. 9.1 Gender and Racial Differences • Educational Attainment, 2005

8. 9.1 Gender and Racial Differences • Earnings by Education, Race, and Sex, 2005

9. 9.1 Gender and Racial Differences Non-Discrimination Factors • Raw racial and gender differentials on earnings, occupational distribution, and unemployment data must be interpreted with caution. • Factors other than discrimination such as individual choice may play a role.

10. 9.2 Discrimination and Its Dimensions Discrimination • Discrimination exists when female or minority workers—who have the same abilities, education, training, and experience as white male workers—are accorded inferior treatment with respect to hiring, occupational access, promotion, wage rate, or working conditions.

11. 9.2 Discrimination and Its Dimensions Types of Discrimination • Wage discrimination • Female or black workers are paid less than male (white) workers for doing the same work. • Employment discrimination • Blacks and women bear a disproportionate share of unemployment. • Occupational job discrimination • Blacks and women are arbitrarily restricted from entering some occupations, even though they are as capable as male (white) workers.

12. 9.2 Discrimination and Its Dimensions Types of Discrimination • Human capital discrimination • Blacks and women have less access to productivity-increasing opportunities such as formal schooling or on-the-job training. • Post-market discrimination • Occurs after a person has entered the labor market. • Wage discrimination • Employment discrimination • Occupational job discrimination

13. 9.2 Discrimination and Its Dimensions Types of Discrimination • Pre-market discrimination • Occurs before a person has entered the labor market. • Human capital discrimination

14. 9.3 Taste for Discrimination Model Taste for Discrimination • Becker’s taste for discrimination assumes that discrimination is a “taste” for which a discriminator is willing to pay. • Society’s taste for discrimination implies that it is willing to forego output and profits as the price of discrimination. • Tastes for discrimination arise from sources: • Employers • Consumers • Employees

15. 9.3 Taste for Discrimination Model Discrimination Coefficient • If black and white workers are equally productive, a non-discriminatory employer will randomly hire black and white workers if the wages are the same. • The strength of a employer’s prejudice against black workers is measured by the discrimination coefficient--d. • For prejudiced employers, the cost of hiring a black worker is the worker’s wage (Wb) plus the psychic cost of hiring a black worker (d).

16. 9.3 Taste for Discrimination Model Discrimination Coefficient • Prejudiced employers will be indifferent between white and black workers when: • Ww = Wb + d • A given employer will hire black workers, if the market white-black wage gap is greater than d.

17. 9.3 Taste for Discrimination Model • Wage Discrimination in the Labor Market

18. 9.3 Taste for Discrimination Model Generalizations • A change in the shape or location of the demand curve will alter the black-white wage ratio. • A decrease in discrimination will lengthen the horizontal portion of the demand curve and reduce the slope of the downward sloping portion. • This will raise the black-white wage ratio.

19. 9.3 Taste for Discrimination Model Generalizations • The size of the black-wage gap varies directly with the supply of black labor. • If the supply of black labor is small that it intersected the horizontal portion on the demand curve, then no wage gap would exist.

20. 9.3 Taste for Discrimination Model Winners and Losers • White workers gain since they are protected from competition from black workers. • Black workers lose since they receive lower wages. • Employers that discriminate lose since they incur higher wage costs than if they did not discriminate. • Competition will decrease discrimination as lower cost non-discriminating firms will drive discriminating firms out of business.

21. 9.4 Theory of Statistical Discrimination Statistical Discrimination • Statistical discrimination exists when employers base decisions upon the average characteristics of the group to which they belong. • Ex: Young males pay higher insurance rates since they have more accidents on average. • Employers base hiring decisions on imperfect predictors of productivity. • Age, education, and experience provide some information about productivity

22. 9.4 Theory of Statistical Discrimination Statistical Discrimination • Employers may use race and gender as well since they also provide information. • Gender may provide information on job commitment since women on average have higher turnover rates. • Race may provide some information about schooling quality since blacks on average go to inferior schools than whites.

23. 9.4 Theory of Statistical Discrimination Implications • Employers are not harmed when they practice statistical discrimination. • They gain since they minimize hiring costs. • Employers are not being malicious in practicing this type of discrimination. • The problem is that workers who have characteristics different from the average are harmed. • Statistical discrimination will diminish if the average characteristics of the groups converge over time. • Male-female turnover rates are converging.

24. 9.5 The Crowding Model: Occupational Segregation • Occupation Crowding

25. 9.5 The Crowding Model: Occupational Segregation Ending Discrimination • Ending occupational crowding would enable females to enter male occupations. • Raise the wage rates of women and lower the wage rates of men. • There would be a net gain to society as domestic output and efficiency would increase.

26. 9.5 The Crowding Model: Occupational Segregation • Index of Occupational Segregation by Gender

27. 9.5 The Crowding Model: Occupational Segregation • Index of Occupational Segregation by Race

28. 9.6 Cause and Effect: Nondiscriminatory Factors Rational Choice • Some economists argue that part of the gender wage gap is the result of rational choices made by women. • Women tend to have interrupted work careers to childbearing. • Due to their shorter work careers, it is rational for women to invest less in education and training. • Their stock of human capital will deteriorate will they are out of the labor force.

29. 9.6 Cause and Effect: Nondiscriminatory Factors • Rational Choice • Occupational segregation may be due to women choosing occupations, such as nursing and teaching, with skills that are useful in home production. • The wage gap may be the result of compensating wage differentials. • Women may prefer safer jobs, less effort-intensive jobs, and shorter commute times. • Women work fewer hours than men. • More likely work part-time. • Full-time women work fewer hours than full-time men.

30. 9.6 Cause and Effect: Nondiscriminatory Factors Discrimination as a Cause • Some argue that women invest less in human capital because of discrimination. • Women stay out of the labor force because of the low pay in the labor market. • If discrimination declined, then more women may decide to remain single or childless. • Sexual harassment may cause women to drop out of the labor force.

31. 9.6 Cause and Effect: Nondiscriminatory Factors Evidence • Male-female pay gap • Researchers decompose the pay gap into the portion explained by differences in productivity characteristics and the portion unexplained (discrimination). • Blau-Kahn find that two-thirds of the pay gap can be explained by differences in experience, industry, occupation, etc. • Pay gap has been falling equally due to a rise in relative productivity characteristics of women and a decline in the unexplained gap.

32. 9.6 Cause and Effect: Nondiscriminatory Factors Evidence • Black-white pay gap • Blau-Kahn find that 89 percent of the pay gap can be explained by differences in productivity characteristics. • The pay gap has not changed much over time. • The black-white difference in education has diminished and thus shrunk the gap. • The payoff to education has risen which has expanded the gap.

33. 9.6 Cause and Effect: Nondiscriminatory Factors Controversy • Economists differ on whether the unexplained portion over or understates the amount of discrimination. • Economists differ on whether unobserved productivity characteristics favor men or women. • Do the observed productivity characteristics (such as occupation) reflect discrimination?

34. 9.7 Antidiscrimination Policies and Issues Equal Pay Act of 1963 • The Equal Pay Act of 1963requires that men and women doing the same job to be paid the same. • Firms could avoid the law’s requirements conducting employment discrimination (e.g., not hiring females for jobs held by males) .

35. 9.7 Antidiscrimination Policies and Issues Civil Rights Act of 1964 • The Civil Rights Act of 1964 outlaws both wage discrimination andemployment discrimination. • Applies to race, gender, color, religion, and national origin. • Applies to private employers, labor unions, and governments.

36. 9.7 Antidiscrimination Policies and Issues Executive Orders • Executive orders in 1965 and 1968 attempted to eliminate discrimination by businesses holding government contracts. • Firms with more than $50,000 of government contracts must develop affirmative-action programs. • Firms must a develop plan to hire more women and minorities if the firm has a smaller of proportion of women and minorities than in the available labor force. • These programs have been under legal and political attack.

37. 9.7 Antidiscrimination Policies and Issues Controversy • Interventionist view • The market has failed to eliminate discrimination. • Minorities and women have been discriminated against in the acquisition of human capital. • Currentlegislation against discrimination does not correct for the effects of pastdiscrimination. • More than equal opportunity must be given to close the current gap.

38. 9.7 Antidiscrimination Policies and Issues Have Anti-Discrimination Policies Worked? • The empirical evidence on whether government policies have narrowed the gender and racial pay gaps is mixed. • It is difficult to separate the effects of the laws from other factors that are changing. • The affirmative-action laws did appear to have improved the employment opportunities for women and minorities in the 1970s but this progress ended in the 1980s.