1. Next page Chapter 14: Labor Market Discrimination

2. Jump to first page 1. Gender and Racial Differences

3. Jump to first page 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.

4. Jump to first page Ratio of Black to White Weekly Earnings The ratio of black to white hourly earnings has not changed much over the past 3 decades.

5. Jump to first page 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.

6. Jump to first page Occupational Distribution by Gender, 2000 Women are 47 percent of the employed labor force. Women have made significant gains in recent decades into higher paying occupations. Women are over- represented in lower paying occupations such secretaries and elementary school teachers.

7. Jump to first page 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.

8. Jump to first page 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.

9. Jump to first page 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.

10. Jump to first page n Raw racial and gender differentials on earnings, occupational distribution, and unemployment data must be interpreted with caution. u Factors other than discrimination such as individual choice may play a role. Non-discrimination Factors

11. Jump to first page 2. Discrimination and Its Dimensions

12. Jump to first page n Discrimination exists when female or minority workers—who have the same abilities, education, training, and experience as white male workers—are accorded inferior treatment with respect to hiring, occupational access, promotion, wage rate, or working conditions. Discrimination

13. Jump to first page n Wage discrimination u Female or black workers are paid less than male (white) workers for doing the same work. n Employment discrimination u Blacks and women bear a disproportionate share of unemployment. n Occupational job discrimination u Blacks and women are arbitrarily restricted from entering some occupations, even though they are as capable as male (white) workers. Types of Discrimination

14. Jump to first page n Human capital discrimination u Blacks and women have less access to productivity-increasing opportunities such as formal schooling or on-the-job training. n Post-market discrimination u Occurs after a person has entered the labor market. F Wage discrimination F Employment discrimination F Occupational job discrimination Types of Discrimination

15. Jump to first page n Pre-market discrimination u Occurs before a person has entered the labor market. F Human capital discrimination Types of Discrimination

16. Jump to first page 3. Taste for Discrimination Model

17. Jump to first page n Becker’s taste for discrimination assumes that discrimination is a “taste” for which a discriminator is willing to pay. u Society’s taste for discrimination implies that it is willing to forego output and profits as the price of discrimination. n Tastes for discrimination arise from sources: u Employers u Consumers u Employees Taste for Discrimination

18. Jump to first page n 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. n The strength of a employer’s prejudice against black workers is measured by the discrimination coefficient--d. u For prejudiced employers, the cost of hiring a black worker is the worker’s wage (W b ) plus the psychic cost of hiring a black worker (d). Discrimination Coefficient

19. Jump to first page u Prejudiced employers will be indifferent between white and black workers when: F W w = W b + d u A given employer will hire black workers, if the market white-black wage gap is greater than d. Discrimination Coefficient

20. Jump to first page 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. 0.8 Q SbSb Quantity of Black Workers W b / W w 1.00 DbDb 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.

21. Jump to first page n A change in the shape or location of the demand curve will alter the black-white wage ratio. u A decrease in discrimination will lengthen the horizontal portion of the demand curve and reduce the slope of the downward sloping portion. F This will raise the black-white wage ratio. Generalizations

22. Jump to first page n The size of the black-wage gap varies directly with the supply of black labor. u If the supply of black labor is small that it intersected the horizontal portion on the demand curve, then no wage gap would exist. Generalizations

23. Jump to first page n White workers gain since they are protected from competition from black workers. n Black workers lose since they receive lower wages. n Employers that discriminate lose since they incur higher wage costs than if they did not discriminate. u Competition will decrease discrimination as lower cost non-discriminating firms will drive discriminating firms out of business. Winners and Losers

24. Jump to first page 4. Theory of Statistical Discrimination

25. Jump to first page n Statistical discrimination exists when employers base decisions upon the average characteristics of the group to which they belong. u Ex: Young males pay higher insurance rates since they have more accidents on average. n Employers base hiring decisions on imperfect predictors of productivity. u Age, education, and experience provide some information about productivity Statistical Discrimination

26. Jump to first page u Employers may use race and gender as well since they also provide information. F Gender may provide information on job commitment since women on average have higher turnover rates. F Race may provide some information about schooling quality since blacks on average go to inferior schools than whites. Statistical Discrimination

27. Jump to first page n Employers are not harmed when they practice statistical discrimination. u They gain since they minimize hiring costs. n Employers are not being malicious in practicing this type of discrimination. u The problem is that workers who have characteristics different from the average are harmed. n Statistical discrimination will diminish if the average characteristics of the groups converge over time. u Male-female turnover rates are converging. Implications

28. Jump to first page 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.”

29. Jump to first page 5. The Crowding Model: Occupational Segregation

30. Jump to first page By crowding women into a narrow set of “female” occupations, men will receive high wage rates of W m in male occupations, while women will receive low wage rates of W f in female occupations. Quantity of Labor Wage rate DmDm Q2Q2 WmWm Q1Q1 WeWe Male Occs DfDf Quantity of Labor Wage rate Q1Q1 WeWe Female Occs Q2Q2 WfWf Occupation Crowding Employers may practice job segregation if male (white) workers don’t like to work with female (black) workers.

31. Jump to first page n Ending occupational crowding would enable females to enter male occupations. u Raise the wage rates of women and lower the wage rates of men. u There would be a net gain to society as domestic output and efficiency would increase. Ending Discrimination

32. Jump to first page 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.

33. Jump to first page Index of Occupational Segregation by Race The index of segregation by race has fallen moderately over time.

34. Jump to first page 6. Cause and Effect: Nondiscriminatory Factors

35. Jump to first page n Some economists argue that part of the gender wage gap is the result of rational choices made by women. n Women tend to have interrupted work careers to childbearing. u Due to their shorter work careers, it is rational for women to invest less in education and training. u Their stock of human capital will deteriorate will they are out of the labor force. Rational Choice

36. Jump to first page u Occupational segregation may be due to women choosing occupations, such as nursing and teaching, with skills that are useful in home production. n The wage gap may be the result of compensating wage differentials. u Women may prefer safer jobs, less effort- intensive jobs, and shorter commute times. n Women work fewer hours than men. u More likely work part-time. u Full-time women work fewer hours than full-time men. Rational Choice

37. Jump to first page n Some argue that women invest less in human capital because of discrimination. u Women stay out of the labor force because of the low pay in the labor market. u If discrimination declined, then more women may decide to remain single or childless. n Sexual harassment may cause women to drop out of the labor force. Discrimination as a Cause

38. Jump to first page n Male-female pay gap u Researchers decompose the pay gap into the portion explained by differences in productivity characteristics and the portion unexplained (discrimination). u Blau-Kahn find that two-thirds of the pay gap can be explained by differences in experience, industry, occupation, etc. u Pay gap has been falling equally due to a rise in relative productivity characteristics of women and a decline in the unexplained gap. Evidence

39. Jump to first page n Black-white pay gap u Blau-Kahn find that 89 percent of the pay gap can be explained by differences in productivity characteristics. u The pay gap has not changed much over time. F The black-white difference in education has diminished and thus shrunk the gap. F The payoff to education has risen which has expanded the gap. Evidence

40. Jump to first page n Economists differ on whether the unexplained portion over or understates the amount of discrimination. u Economists differ on whether unobserved productivity characteristics favor men or women. u Do the observed productivity characteristics (such as occupation) reflect discrimination? Controversy

41. Jump to first page 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.

42. Jump to first page 7. Antidiscrimination Policies and Issues

43. Jump to first page n The Equal Pay Act of 1963 requires that men and women doing the same job to be paid the same. u Firms could avoid the law’s requirements conducting employment discrimination (e.g., not hiring females for jobs held by males). Equal Pay Act of 1963

44. Jump to first page n The Civil Rights Act of 1964 outlaws both wage discrimination and employment discrimination. u Applies to race, gender, color, religion, and national origin. u Applies to private employers, labor unions, and governments. Civil Rights Act of 1964

45. Jump to first page n Executive orders in 1965 and 1968 attempted to eliminate discrimination by businesses holding government contracts. n Firms with more than $50,000 of government contracts must develop affirmative-action programs. u 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. u These programs have been under legal and political attack. Executive Orders

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

47. Jump to first page n The empirical evidence on whether government policies have narrowed the gender and racial pay gaps is mixed. u It is difficult to separate the effects of the laws from other factors that are changing. n 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. Have Anti-discrimination Policies Worked?

48. Jump to first page End Chapter 14