Labor Economic Issues

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Labor Economic Issues
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Definitions That I Will Use Normative
propositions about how I think the world ought to
be. Positive propositions about how I think
the world actually is.
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The policy focus is on differences in wages
between people. Why do these occur? Are they
evidence of market failure or discrimination?
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Prejudice Persistent incorrect belief about a
racial or ethnic group, that may be either
harmful (usually) or beneficial to
them. Discrimination An act that causes
someone loss of income or physical harm and is
based on the individuals group membership in an
irrelevant way.
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Historical notes African Americans 1. African
Americans are diverse among themselves For
example, descendants of American slaves and
descendants of West Indian were different. For
example, descendants of American slaves and
descendants of American freemen were
different. 2. Negro was defined differently in
America vs the Caribbean "one drop of
blood." 3. Southern slaves were probably hard
workers contrary to earlier historians'
beliefs. 4. Booker T. Washington and
W.E.B.Dubois represented opposite philosphies
to improve African American life.
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Historical notes Overseas Chinese
1. Discrimination against them often included
physical abuse and mass murder by other
Asians. 2. The most common complaint against
them seems to be that they were too industrious
and got ahead of the native born people. 3. The
American experience amazingly hard working but
not all of them nice people either the Tong
Society.

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Historical notes Irish Americans 1. "No dogs
or Irish" Why slave owners preferred to hire
an Irishman for a risky job than to send their
own slave. 2. Sowell The Irish took the
political route to economic and social success
and "this slowed down their inevitable
progress."
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Historical notes The Jews in America 1. "Low
IQs" on the Army tests in WWI. 2. Restricted
clubs were minor discriminations compared to
their experience in Europe. 3. Preeminence in
intellectual fields as well as entertainment. 4.
Successive assimilation western Euopean Jews at
first looked down on the later arriving east
European Jews.
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Historical notes German and Japanese
Americans 1. Both industrious and
community-minded immigrants. 2. Contrast their
experience during WWII
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Historical notes Discrimination between groups
of the same racial and ethnic makeup. 1. Hutus
versus the Tutsis in Rwanda. 2. Why the Germans
tattooed the Jews during the Holocaust. 3.
Why Catholic and Protestant Northern Irish
children came to America in the summers.
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Lessons from these historical notes 1.
Discrimination happens between people of the
same skin color, religion, and ethnicity. 2.
Discrimination is common throughout the world
and is probably as common as tolerance. 3. Ethnic
and racial groups experience divers progress
economically and socially. 4. Ethnic groups are
often themselves diverse. 5. Some "stereotypes"
have a truth in them, some don't.
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Discrimination is based on the making of
comparisons between races, ethnic groups and the
genders. Let's ask "Can valid comparisons be
made between these groups?"
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However, economists would generally warn you
about comparing conglomerations of things across
groups of people ("conglomerations of
things" e.g. a summing up of average
education, income, artistry, musicianship. In
other words, it's generally invalid to compare
e.g. the "Worthwhileness" or the "Contribution
to Humanity" or any such conglomeration of
things (see above) across groups of people by
race, ethnic group, religion, gender etc.
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A Pentathalon Game (A game to show the
impossibility of making objective comparisons
of ethnic, race, and gender groups for
conglomerates of measures. A "Pentathalon" is a
track meet competition that has five events.
Each athlete competes in and obtains a judging
score from 0 to 100 in each event. Hint The
overall score for each athlete is a
conglomeration of his five event scores.
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For example, Joe Lapeer gets
Joes Judges
score weights 1. 100 yard dash
............. 60 pts .20 2.
Marathon..................... 78 pts
.50 3. Shot put....................... 30 pts
.10 4. Relay........................... 89
pts .05 5. High jump...................
40 pts .15 Weighted sum
64.45 1.00 The "conglomeration."
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Moral of the story Most comparisons of racial,
gender and ethnic groups require an implicit
summing and weighting of multiple characteristics,
and so they are not objectively valid as a
general rule.
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Becker's theory of economic discrimination Algeb
raic version Assume the wage an employer
must pay for both B and W laborers is w.
Assume the psychic cost of hiring a B, as
experienced by a bigoted employer is equivalent
to 10 percent of w, that is, the bigot "pays" (1
0.1)w when hiring a B.
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Then by the Optimal Input Purchase Rule, the
bigot will hire Bs and Ws up to the point where
MPB/(10.1)w MPW/w. But this implies that
MPB/w gt MPW/w. Moral of the story From the
bigots point of view, he is hiring Bs
efficiently, but from an objective point of
view he is giving up profits he could have had
by hiring more Bs.
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A numerical example If MPB12 widgits and MPW8
and w25. The Bigot could fire a W (saving 25)
and hire a B (spending the same 25) and gain 4
widgits net. The 4 extra widgits are found as the
difference between the 8 W-made widgits given
up when W is fired, and the 12 B-made widgits
gained by hiring the B.
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The Moral of Becker's Theory Oddly enough, the
bigot is one of the victims of his own bigotry,
and of course so is the B laborer. Coupled with
what we know of competitive markets, these
markets will help to eliminate bigotry, if
Becker is correct, that is, bigotry would
decidedly have no survival value in a
competitive market system.
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Sex Discrimination on the Job Two types 1. Sex
discrimination occurs when women are shunted
into low-paying careers. 2. Sex discrimination
occurs when women are paid less for doing the
same work?
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Do women make better 1. nurses? 2.
secretaries? 3. doctors? 4. lawyers? 5.
firemen? 6. combat soldiers? 7. wrestlers?
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What the law says 1. the government generally
leaves a business alone unless they detect a
fairly clear discrepancy between the firms
workforce and the labor force. 2. or if the firm
can show that the nature of the job rules out the
females in question.
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What is Comparable Worth? Principle of
comparable worth People with similar human
capital should get similar wages.
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Human Capital in practice, means the
person's education and experience. This concept
guides the market approach to evaluating
whether sex discrimination is occuring in a job
market or for an individual person.
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Market Approach in practice First Adjust for
the human characteristics that are important
for people's productivity at work. 1.
Experience (in years). 2. Education (in
years). 3. Field (engineers usually make more
than biologists). 4. IQ (the
measure of school quality). Second Measure the
contribution of gender. 5. Woman dummy
(equals one if female).
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How can we tell if women are underpaid
today? (Applying the market approach) Wagea
bEducation cExperience dField eIQ
fWoman u This equation is estimated with
data. If f lt 0 we know there is
discrimination.
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What do the real world data show? "Wage
discrimination has ended for American women.
African Americans have achieved a par with
whites." (Journal of Human Resources). Other
studies comments.
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Introduction to Bigamy Good economists are
often of the type of person who pursues ideas
regardless to wherever they lead. Sometimes the
result is correct, but sometimes it seems (or
even is) odd. Which of these is the case when
Gary Becker reasons that under certain economic
conditions, both women and men will prefer
bigamy in a marriage equilibrium?
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An exercise with supply and demand
Becker's Theory of why some societies approve of
men having more than one wife
The "marriage price" is anything of value offered
to the wife for her to willingly marry, by this
she determines her "wife supply." "Wife demand"
shows the highest marriage price the
husband would be willing to pay. Here, men are
in "short supply."