Labor market discrimination

1
Labor market discrimination

• God, what a gorgeous staff I have. I just cannot
  understand those who have ugly people working for
  them, I really cant. Just call me a pathetic
  aesthetic Jade Jagger

2
Gender and labor market differences in gender and
skills, 2004
Source Borjas (2008)
3
The Discrimination Coefficient

• Taste discrimination an economic concept that
  essentially translates the notion of racial
  prejudice
• Even though it costs wb dollars to hire one
  person-hour of black labor, the employer will act
  as if it costs wb(1d) dollars, where d is
  positive and called the discrimination
  coefficient
• Racial prejudice causes employers to blindly
  perceive the costs of hiring blacks as higher
  than their true costs

4
Employer Discrimination

• If blacks and whites are perfect substitutes,
  employers have a segregated work force (an
  implication of the Becker model)
• Discrimination does not pay
• Employers hire the wrong color worker and/or they
  hire the wrong number of workers

5
The Employment Decision of a Firm That Does Not
Discriminate
If the market-determined black wage is less than
the white wage, a firm that does not discriminate
will hire only blacks. It hires black workers up
to the point where the black wage equals the
value of marginal product of labor, or EB.
6
The Employment Decision of a Prejudiced Firm
Firms that discriminate can be either white firms
(if the discrimination coefficient is very high)
or black firms (if the discrimination coefficient
is relatively low). A white firm hires white
workers up to the point where the white wage
equals the value of marginal product. A black
firm hires black workers up to the point where
the utility-adjusted black wage equals the value
of marginal product. Firms that discriminate
hire fewer workers than firms that do not
discriminate.
7
Profits and Discrimination
Discrimination reduces profits in two ways. Even
if the discriminatory firm hires only black
workers, it hires too few workers. If the
discriminatory firm hires only white workers, it
hires too few workers at a very high wage.
8
Determination of Black/White Wage Ratio in the
Labor Market
If the black-white wage ratio is very high, no
firm in the labor market will want to hire
blacks. As the black-white wage ratio falls,
more and more firms are compensated for their
disutility and the demand for black workers
rises. The equilibrium black-white wage ratio is
given by the intersection of supply and demand,
and equals (wB/wW). If some firms prefer to hire
blacks, they would be willing to hire blacks even
if the black-white wage ratio exceeds 1, shifting
the demand curve up to D?. If the supply of
blacks is sufficiently small, it is then possible
for the black-white wage ratio to exceed 1.
9
Types of discrimination

• Gender
• Race
• Employee
• Consumer
• Age/disability

10
Example Hamermesh and Biddle (1994) Beauty and
the labor market, AER, 84, 1174-94
The dependent variable is log (hourly earnings)
11
Example Hamermesh and Biddle (1994) Beauty and
the labor market, AER, 84, 1174-94

12
Statistical Discrimination

• This form of discrimination is based on treating
  an individual on the basis of membership in a
  group and knowledge of that groups history

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The Impact of Statistical Discrimination on Wages
The workers wage depends not only on his own
test score, but also on the mean test score of
workers in his racial group. (a) If black
workers, on average, score lower than white
workers, a white worker who gets T points earns
more than a black worker with the same score.
(b) If the test is a better predictor of
productivity for white workers, high-scoring
whites earn more than high-scoring blacks, and
low-scoring whites earn less than low-scoring
blacks.
14
Example Bertrand and Mullainathan (2004) Are
Emily and Greg more employable than Lakisha and
Jamal? AER, 94(4), 991-1013.
15
Example Bertrand and Mullainathan (2004) Are
Emily and Greg more employable than Lakisha and
Jamal? AER, 94(4), 991-1013.
16
Measuring the Impact of Discrimination on the Wage
The average woman has sF years of schooling and
earns wF dollars. The average man has sM years
of schooling and earns wM dollars. Part of the
wage differential arises because men have more
schooling than women. If the average woman was
paid as if she were a man, she would earn
dollars. A measure of discrimination is then
given by The average woman has sF years of
schooling and earns wF dollars. The average man
has sM years of schooling and earns wM dollars.
Part of the wage differential arises because men
have more schooling than women. If the average
woman was paid as if she were a man, she would
earn dollars. A measure of discrimination is
then given by (wF?wF).
17
Trend in Black-White Earnings Ratio, 1967-2001
Sources U.S. Bureau of the Census, Historical
Income TablesPeople, Tables P-38A and P-38B.
Full-Time Year-Round Black and White Workers by
Median Earnings and Sex http//landview.census.g
ov/hhes/income/histinc/incperdet.html. The
earnings refer to the median earnings of
full-time, full-year workers aged 15 or above.
18
Male Labor Force Participation Rates, by Race,
1955-2000
19
The Decline in the Labor Force Participation of
Blacks and the Average Black Wage
20
The female-male wage gap Gronau (1988)
Sex-related wage differentials and the womens
interrupted labor careers-the chicken or the egg,
JOLE, 6(3), 277-301.
21
The female-male wage gap Gronau (1988)
Sex-related wage differentials and the womens
interrupted labor careers-the chicken or the egg,
JOLE, 6(3), 277-301.

• Models estimated

22
The female-male wage gap Gronau (1988)
Sex-related wage differentials and the womens
interrupted labor careers-the chicken or the egg,
JOLE, 6(3), 277-301.

• Results
• - on-the-job training and job requirements are
  the main determinants of the wage gap
• -womens labor force participation decisions are
  more sensitive to their family environments than
  mens
• -interestingly, the skill intensity of female
  jobs is unrelated to their labor force plans
  (possible explanation gender discrimination
  often takes the form of occupational segregation)

23
The gender wage gap occupational segregation
Source Borjas, pp. 401