July 2006

1
July 2006

• ON THE MEASUREMENT OF ILLEGAL WAGE
  DISCRIMINATION THE MICHAEL JORDAN PARADOX
• Juan Prieto, Juan G. Rodríguez and Rafael Salas

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Overview

• Motivation
• Discrimination and inequality of opportunities
• Relevant issues of political economy
• Justice and efficiency claims
• Discrimination classical view
• A new appoach endogenous allocation to groups
• Application to Germany and the UK
• Discussion

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Discrimination classical view

• Oaxaca-Blinder (1973) gender discrimination
• Two wage equations for men (m), women (w)
• The women wage discriminatory gap (w.r.t men)

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Discrimination classical view (2)

• Oaxaca-Blinder (1973) gender discrimination
• The total women wage discriminatory gap (w. r. to
  men)
• Quantiles analysis can improve estimates locally
• Newell and Reilly, 2001
• Albrecht, Björklund and Vroman, 2003
• Gardeazábal and Ugidos, 2005.

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Discrimination latent class view

• Latent class models for gender discrimination
• Two wage equations for two different structures
  type/class 1 and type/class 2
• Plus a vector of probabilities of individual i
  belonging to groups 1,2.
• This is estimated simultaneous and endogenously
  by maximum likelihood estimators that allocates
  individuals to groups according to their human
  capital characteristics, observed wages and sex,
  and trying to reduce internal errors of the two
  wage equations (by maximizing the log likelihood
  function)

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Discrimination latent class view (2)

• The log likelihood function
• Where f() is the standard normal density
  function

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Discrimination latent class view (3)

• The vector of probabilities of individual i
  belonging to groups 1,2 are estimated as follows
  
• First, we estimate a priori probabilities of i
  belonging to j Pij
• By maximaizing the log likelihood function.
• Then we update ex post probabilities by using the
  Bayes rule and we obtain

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Discrimination latent class view (4)

• The women wage discriminatory gap (w.r.t men) for
  iwomen
• which is more general than Oaxaca-Blinder,
• for iwomen (and 1 is the high wage class)

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Example let i Hillary Clinton HC

• Pick XHC the human capital characteristics of HC

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Example i Hillary Clinton HC (2)

• The HC gap is
• which is normaly positive since
• Oaxaca-Blinder assume

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Discrimination orderings

• Distributional appoach
• Jenkins 1994
• discrimination curves from discrimination gaps in
  a decreasing order
• del Río al. 2006
• discrimination curves from discrimination gaps in
  an increasing order, eliminating negative gaps

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Applications

• European households panel data
• Germany 1994-2001
• Model 1 and 2 (extended)
• UK 1994-2001
• Model 1 and 2 (extended)
• Tables

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Table 1 definitions
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Table 2 summary statistics
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Table 3 Two models class 1
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Table 4 Two models class 2
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Table 5 prior probabilities
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Results

• Germany unambiguously more discrimination than in
  the UK

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Results
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Results
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Results
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Conclusions

• A new appoach endogenous allocation to groups
• Application to Germany and the UK shows positive
  discrimination bias of Oaxaca-Blinder model
• Positive gender discrimination in both
  countries

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July 2006

• ON THE MEASUREMENT OF ILLEGAL WAGE
  DISCRIMINATION THE MICHAEL JORDAN PARADOX
• Juan Prieto, Juan G. Rodríguez and Rafael Salas