Chapter 27 The Economics of Race and Sex Discrimination Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

27-2 Chapter Outline The Economic Status of Women and Minorities Why Women Earn Less than Men What Is Discrimination? Modeling Discrimination Affirmative Action

27-3 You Are Here

27-4 Economic Status of Women Labor-force participation rate –Labor force participation rate: the percentage of people in a particular category who are over 16 and working –After adjusting the labor-force participation rate to reflect the fact that as the U.S. population has been ageing the real impact is Men –have 61% more income than women, –make 25% more in wages for full-time employment, –are 11% (5 percentage points) more likely to be covered by pensions, –are less likely to be in poverty. Bankruptcies of single women are increasing substantially.

27-5 Economic Differences between Men and Women MenWomen Income from all sources$32,265$20,014 Average weekly wages for full-time employment $798$635 Mean net worth (singles)$120,718$102,718 Covered by a pension51%46% Poverty rate11.0%13.6% Percentage of single- filing bankruptcies 46%54%

27-6 Ratio of Women’s Income to Men’s

27-7 Difference in Earnings by Occupation Occupation Women ’ s Earning ’ s as a Percent of Men ’ s Physicians86% Lawyers80% Managers/Executives71% Teachers (elementary)88%

27-8 Social and Economic Conditions for African-Americans African-American family income is rising. The relative position of African-American family income to white family income has risen slowly. Rates of poverty and unemployment are much higher for African-Americans than whites. More African-American men are in prison than in college.

27-9 Median Family Income by Race

27-10 Black/White Median Family Income

27-11 What is Discrimination Disparate Treatment Discrimination treating two otherwise equal people differently on the basis of race Adverse Impact Discrimination doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others Rational or Statistical Discrimination discrimination that is based on sound statistical evidence and is consistent with profit maximization

27-12 Measuring and Detecting Discrimination Regression techniques –Statistical methods which seek to determine if the differences in treatment for whites and blacks could have happened by random chance. Auditing techniques –Sending paid actors into a situation to determine if people with identical economic characteristics are treated differently based on race.

27-13 Labor Market Discrimination in the Past

27-14 Modeling Labor Market Discrimination Labor market for jobs only whites are allowed do. Wage S ND D w ND Labor market for jobs that blacks who work must do. Wage S ND D SDSD SDSD w white w black

27-15 Why Competition Would Eliminate Discriminatory Pay Businesses that hired only whites at the higher wage would have higher costs than businesses that did not discriminate. Businesses that did not discriminate could lower their prices and take the market share of those firms that did discriminate. As this happened firms would see that discrimination was not consistent with maximizing profits and would stop discriminating.

27-16 Why Competition Would Not Necessarily Eliminate Discrimination In industries where there is economic profit, firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks. In industries in which the customer chooses which business to patronize based on race, firms may be willing to discriminate because their profit maximizing interest and discrimination are consistent.

27-17 Why Women Make Less than Men Pregnancy –Loss of time in the field and intermittent absence can put women at a economic disadvantage. (Many times this difference in treatment is against the law.) Stay-at-home Moms –98% of stay-at-home parents are women leaving them out of the job market for extended periods of time.

27-18 Why Women Make Less than Men (continued) Different Professions –Teachers (81%) –Nurses (90%) –Social Workers (68%) –Day Care workers (94%) –Secretaries (97%)

27-19 Flexible Employment –Women, more than men, tend to choose jobs that allow them to deal with her children’s activities and illnesses. Why Women Make Less than Men (continued)

27-20 Sociology vs. Economics Economic Explanation for pay differences –People make choices and one of the consequences of those choices is their earning capacity. –If women choose professions that do not pay well, to have and stay home with children jobs that allow them to deal with their children –they will make less money.

27-21 Sociology vs. Economics (continued) Sociological Explanation for pay differences –Women are socialized to pick certain professions into being the parent to stay home into being the parent that sacrifices career for family –which causes them to be paid less.

27-22 Consumption Market Discrimination Blacks pay more for cars. Blacks are shown fewer homes and those homes are in already integrated neighborhoods. Blacks are more likely to be turned down for a mortgage loan.

27-23 Affirmative Action Affirmative Action : any policy that is taken to speed up the process of achieving equality

27-24 History of Affirmative Action But freedom is not enough. You do not wipe away the scars of centuries by saying: Now you are free to go where you want, do as you desire, and choose the leaders you please.You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, “You are free to compete with all the others,” and still justly believe that you have been completely fair.Thus it is not enough to just open the gates of opportunity. All our citizens must have the ability to walk through those gates. Lyndon Johnson, 1965 at Howard University

27-25 More History Nixon’s Executive order mandated affirmative action in contracts with the federal government. Set-asides were created so that 10% of all federal highway contracts were “set aside” for minority owned contractors. Various Supreme Court rulings have limited the scope with which affirmative action can be employed. It must now meet a high standard of “strict scrutiny.”

27-26 The Civil Rights Act of 1964 vs. the California Civil Rights Initiative Civil Rights Act 1964 –The state shall not discriminate against any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting. California Civil Rights Initiative –The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.

27-27 Gradations of Affirmative Action An equal opportunity to apply –Requires employers to advertise in minority-seen outlets. Race as a tie-breaker –Race may break a tie between equally situated candidates. Acceptance of all qualified minorities –Used most often in university admissions to selective schools. A standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool. Guidelines –Targets are set for minority hiring and promotion and, if they are not met, a justification must be given. Quotas –Strict percentages of minorities must be hired. This is generally unconstitutional unless ordered by a court to remedy past discrimination.

27-28 The University of Michigan Case Undergraduate Admission System –Based on a point system that gave points for academic achievement, race, etc. –Found unconstitutional Graduate Admission System –Based on the desire to achieve a critical mass of minority students –Found constitutional

27-29 Myths of Affirmative Action Roland Fryer and Glenn Loury Myth #1 Affirmative Action Can Involve Goals and Timetables while Avoiding Quotas Myth #2 Color-Blind Policies Offer an Efficient Substitute for Color-Sighted Affirmative Action. Myth #3 Affirmative Action Undercuts the Incentive to Invest in Yourself Myth #4 Equal Opportunity is Enough to Ensure Racial Equality Myth #5 The Earlier in the Better Myth #6 Many Nonminority Citizens are Directly Affected by Affirmative Action Myth #7 Affirmative Action Always Helps its Beneficiaries