ECW2141ECG9170

1
ECW2141/ECG9170 Labour Economics
2
Topic 6 Alternative models of the labour market
Topic 7 Discrimination in labour markets
Topic 5 Internal labour markets
Topic 4 Education, training and human capital
investment
Labour Economics
Topic 9 Wage relativities and the personal
distribution of income
Topic 3 (Two weeks) Labour supply, labour demand
and market equilibrium
Topic 2 The supply of labour
Topic 1 An overview of the study of labour
markets
3
Aims
Discrimination in labour markets

• On completion of this topic you will have gained
  an understanding of
• the problems faced by disadvantaged groups in the
  labour market
• what constitutes discrimination in the labour
  market
• theories of discrimination and its relationship
  to labour market disadvantage and
• policies to combat discrimination.

4
Reading
Discrimination in labour markets

• Textbooks
• Norris, Ch. 7.
• Hamermesh and Rees, Ch. 13.
• King, Ch. 6.
• McConnell and Brue, Ch. 12.
• Other
• ODonnell, C., Theories of Women and
  Employment, in Whitfield (ed.), pp.125-141
  (Reader).
• Whitfield, Keith, The Australian Labour Market,
  Ch. 5 (pp.101-115 in Reader)

5
Discrimination in labour markets
Theories of discrimination
Neoclassical theory
Institutionalist theory
Overcoming discrimination
6
Discrimination in labour markets
Discrimination

• The refusal to employ someone because of personal
  characteristics unrelated to the performance of
  the job, or employing such a person only at a
  lower rate of pay. This is a fairly clear case.
• The fact that members of an identifiable group
  earn on average less than members of other
  groups.
• The under-representation of members of a group/s
  in particular occupations.

7
Discrimination in labour markets
Theories of discrimination
Neoclassical theory

• Discrimination is a factor affecting the demand
  for labour.
• It is built into the demand for labour function
  (MRPL).
• May originate from

Employers
Employees
Customers
8
Discrimination in labour markets
Theories of discrimination
Neoclassical theory
Employers

• Maximising profits is the overriding goal of
  employers.
• Discrimination should not exist by economic
  reasons
• Refusing to employ persons from a particular
  group, or only employing them at a lower wage,
  reduces the supply of labour to the firm, raises
  costs and lowers profits.
• Employers are products of their society,
  influenced by the social pressures around them.
• Discrimination as a product the consumption of
  which involves a cost - loss of profits.

9
Discrimination in labour markets
Theories of discrimination
Neoclassical theory
Employers

• Discrimination involves a cost via a reduced
  supply of labour.
• Firms which exercise discrimination should be
  competed out of the market by firms which do not.
  
• Competitive markets should eliminate
  discrimination.
• (brings costs above a competitive price).
• The persistence of discrimination would suggest
  that markets are not competitive -
• in a monopolistic market structure, part of the
  above normal profit could be taken in the form of
  exercising discrimination

10
Discrimination in labour markets
Theories of discrimination
Neoclassical theory
Employees

• Employers are not the only source of
  discrimination.
• An employer who has no taste for discrimination
  may be forced to discriminate by the attitude of
  employees and customers.
• Employee pressure to exclude certain classes of
  potential employees is particularly strong in
  times of high unemployment.
• Attitudes toward immigration and employment of
  married women.

11
Discrimination in labour markets
Theories of discrimination
Neoclassical theory
Customers

• Consumers may exercise a taste for discrimination
  directing their purchases away from goods and
  services produced by certain types of labour.
• In this case the cost of discrimination is higher
  priced goods and services.

12
Discrimination in labour markets
Theories of discrimination
Institutionalist theory
Statistical discrimination
Monopolistic discrimination
13
Discrimination in labour markets
Theories of discrimination
Institutionalist theory
Statistical discrimination

• Referring to the dual labour market hypothesis.
• Jobs in the primary sector are filled on the
  basis of personal characteristics which allows
  scope for overt discrimination, or discrimination
  in a more subtle form.
• suppose that employers believe that women have a
  higher employment turnover rate than men.
• Then employers would see the costs of employing
  female workers as higher than for males and
  females would only be employed at a lower wage.
• This may explain the concentration of women in
  jobs where training costs are small or where such
  costs are met by the employee or the state.

14
Discrimination in labour markets
Theories of discrimination
Institutionalist theory
Statistical discrimination

• The problem now becomes one of statistical
  discrimination.
• That is discrimination against individuals by
  treating them as if they conformed to the norm
  for the group to which they belong.

15
Discrimination in labour markets
Theories of discrimination
Institutionalist theory
Monopolistic discrimination

• The effect of limiting the range of potential
  occupations for females means they have less
  employment mobility
• Therefore, the supply of female labour is likely
  to be less elastic than that of males.
• A profit maximising employer
• would employ N3 workers (where MRPL is equal to
  the combined MLC of males and females).
• Of these workers N1 would be males and N2
  females.
• The males would receive a higher wage (WM) than
  the female employees (WF).

16
Discrimination in labour markets
Overcoming discrimination
Neoclassical approach

• Emphasise the need for competitive markets as a
  deterrent to discrimination (for reasons outlined
  above).

17
Discrimination in labour markets
Overcoming discrimination
Regulatory approach

• Equal pay Legislation
• aims at preventing payment of a lesser wage for
  equal work
• May reduce employment opportunities,
• If employers believe that the costs associated
  with employing women are greater than the costs
  of employing males.
• Anti-discriminatory Legislation
• May be of benefit if it raises the cost to the
  employer of discrimination.
• Serves an educational function.
• Reduces individual freedom, as like society
  places restrictions on the consumption of various
  products, for example, drugs.
• The issue is whether individuals should be free
  to exercise a taste for discrimination.

18
Discrimination in labour markets
Overcoming discrimination
Regulatory approach

• Equal Opportunity (or Affirmative Action)
  Policies -
• an attempt to redress the effect of past
  discriminatory practices, by positive
  discrimination in favour of the affected group.
• take the form of requesting (compelling?)
  employers to develop policies on equal
  opportunity and perhaps set targets or goals for
  achieving a particular employee mix.

19
Discrimination in labour markets
Overcoming discrimination
Regulatory approach

• Complete elimination of discrimination may
  require a complete sociological change.
• Education is therefore likely to be an important
  factor.
• Leadership by way of employment decisions in the
  public sector - which is less constrained by
  market forces - may be an important element in
  such an educational process.