Chapter 14: Labor Market Discrimination

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Chapter 14 Labor Market Discrimination
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• 1. Gender and Racial Differences

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Ratio of Female to Male Hourly Earnings

• The ratio of female to male hourly earnings
  rose substantially from the late 1970s to the
  early 1990s and has leveled off since then.

• The wage gap has decreased because the skills
  of women have risen, the industrial and
  occupational distributions have shifted in
  favor of women, and the decline in unionism
  has decreased male wages more than female
  wages, and discrimination has declined.

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Ratio of Black to White Weekly Earnings

• The ratio of black to white hourly earnings
  has not changed much over the past 3 decades.

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Unemployment Rate

• The unemployment rate difference between
  white female and white males has narrowed over
  time.

• Blacks have an unemployment rate that is
  consistently twice as great of those of whites.

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Occupational Distribution by Gender, 2000

• Women are 47 percent of the employed labor
  force.

• Women are over- represented in lower paying
  occupations such secretaries and elementary
  school teachers.

• Women have made significant gains in recent
  decades into higher paying occupations.

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Occupational Distribution by Race, 2000

• Blacks are 11 percent of the employed labor
  force.

• Blacks are over- represented in lower paying
  occupations such janitors and cleaners and
  nursing aides and orderlies.

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Educational Attainment, 1999

• White males are likely to have a college
  education than females and blacks among
  persons 25 and older.

• The quality of education received by blacks
  has generally been inferior that acquired by
  whites.

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Earnings by Education, Race, and Sex, 1999

• Full-time women and black workers earn less
  than white males at each educational level.

• Black males tend to earn more than black and
  white females.

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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.

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• 2. Discrimination and Its Dimensions

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Discrimination

• Discrimination exists when female or minority
  workerswho have the same abilities, education,
  training, and experience as white male
  workersare accorded inferior treatment with
  respect to hiring, occupational access,
  promotion, wage rate, or working conditions.

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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.

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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

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Types of Discrimination

• Pre-market discrimination
• Occurs before a person has entered the labor
  market.
• Human capital discrimination

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• 3. Taste for Discrimination Model

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Taste for Discrimination

• Beckers taste for discrimination assumes that
  discrimination is a taste for which a
  discriminator is willing to pay.
• Societys 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

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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 employers prejudice against
  black workers is measured by the discrimination
  coefficient--d.
• For prejudiced employers, the cost of hiring a
  black worker is the workers wage (Wb) plus the
  psychic cost of hiring a black worker (d).

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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.

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Wage Discrimination in the Labor Market

• The demand for black workers is formed by
  arraying employers from lowest for highest
  discrimination coefficients.

• The horizontal portion of the demand curve is
  composed of non-discriminating employers.

• The downward sloping portion consists of
  discriminating employers.

• The quantity supply of black workers supplied
  rises as the black-white wage ratio rises.

• The intersection of the supply and demand for
  black workers determines the black-white ratio
  and the number of black workers employed.

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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.

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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.

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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.

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• 4. Theory of Statistical Discrimination

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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

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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.

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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.

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• Questions for Thought

1. Explain the following statement In the
taste-for-discrimination model, discrimination is
practiced even though it is costly to do so. But
in the statistical discrimination model, it is
clear that discrimination pays.
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• 5. The Crowding Model Occupational
  Segregation

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Occupation Crowding

• By crowding women into a narrow set of
  female occupations, men will receive high
  wage rates of Wm in male occupations, while
  women will receive low wage rates of Wf in
  female occupations.

• Employers may practice job segregation if male
  (white) workers dont like to work with female
  (black) workers.

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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.

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Index of Occupational Segregation by Gender

• The index of segregation shows the percentage
  of women (men) who would have to change
  occupations for women to be distributed among
  occupations in the same proportions as men.

• The index of segregation by gender has fallen
  moderately over time.

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Index of Occupational Segregation by Race

• The index of segregation by race has fallen
  moderately over time.

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• 6. Cause and Effect Nondiscriminatory Factors

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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.

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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.

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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.

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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.

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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.

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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?

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• Questions for Thought

1. Wage differences between men and women do not
reflect discrimination but rather differences in
job continuity and rational decisions with
respect to education and on-the-job training.
Explain why you agree or disagree.
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• 7. Antidiscrimination Policies and Issues

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Equal Pay Act of 1963

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

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Civil Rights Act of 1964

• The Civil Rights Act of 1964 outlaws both wage
  discrimination and employment discrimination.
• Applies to race, gender, color, religion, and
  national origin.
• Applies to private employers, labor unions, and
  governments.

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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.

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Controversy

• Interventionist view
• The market has failed to eliminate
  discrimination.
• Minorities and women have been discriminated
  against in the acquisition of human capital.
• Current legislation against discrimination does
  not correct for the effects of past
  discrimination.
• More than equal opportunity must be given to
  close the current gap.

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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.

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EndChapter 14