Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan CHAPTER 19 THE ECONOMICS OF LABOR MARKET DISCRIMINATION Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: ©Jacob Wackerhausen/iStockphoto

 Describe the sources of earnings differences among people  Define discrimination  Summarize the predominant economic models of discrimination  Model the effects of discrimination  Discuss the main antidiscrimination policies in the U.S. and the research findings on the effectiveness of these policies Copyright © 2013 John Wiley & Sons, Inc. 2 AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

 The U.S. workforce has become more racially and gender diverse over the past 30 years.  An Earnings Ratio measures the earnings of one group as a percentage of the earnings of another group.  The Pay Gap is the percent difference in earnings between two groups. Copyright © 2013 John Wiley & Sons, Inc. 3 RACE AND GENDER IN THE U.S. WORKFORCE

Copyright © 2013 John Wiley & Sons, Inc. 4 RACE AND GENDER IN THE U.S. WORKFORCE

 Demand and supply of labor  Levels of education and training  Full-time vs. part-time  Cost of living differences between areas  Types of jobs  About half of the pay gap between black and white workers is explained by differences in the education, age, sex, location, occupation, and industry characteristics. Copyright © 2013 John Wiley & Sons, Inc. 5 CAUSES FOR THE PAY GAPS

Copyright © 2013 John Wiley & Sons, Inc. 6 EDUCATION ATTAINMENT BY RACE AND ETHNICITY

 Discrimination in the labor market occurs when workers who are equally productive are treated differently based on characteristics that are not related productivity, or when workers who are not equally productive are treated the same because of some arbitrary characteristic. Copyright © 2013 John Wiley & Sons, Inc. 7 WHAT IS DISCRIMINATION?

 In Taste-based Models of discrimination, people are assumed to have preferences not to work with, hire, or buy from the discriminated group.  Two Types:  Employer Discrimination  Customer Discrimination Copyright © 2013 John Wiley & Sons, Inc. 8 TASTE-BASED MODELS OF DISCRIMINATION

Employer Discrimination occurs when employers base their employment decisions on prejudice against certain workers. Copyright © 2013 John Wiley & Sons, Inc. 9 EMPLOYER DISCRIMINATION

Copyright © 2013 John Wiley & Sons, Inc. 10 RELATIVE PROFITS OF DISCRIMINATORY AND NONDISCRIMINATORY FIRMS

 Customer Discrimination occurs when customers base their purchasing decisions on the race, sex, or other demographic characteristics of the workers with whom they interact. Copyright © 2013 John Wiley & Sons, Inc. 11 CUSTOMER DISCRIMINATION

 In Incomplete Information Models of discrimination, differences in labor market outcomes arise because membership in a group conveys information about a person ’s potential skills and productivity.  Statistical Discrimination occurs when people use information about the average characteristics of a group when making decisions about an individual member of that group. E.g. Racial Profiling Copyright © 2013 John Wiley & Sons, Inc. 12 INCOMPLETE INFORMATION MODELS

 The 1964 Civil Rights Act was the first federal legislation to prohibit employment discrimination.  Affirmative Action is a set of policies that mandate taking action to ensure the equal treatment of people regardless of their race, creed, color, or national origin. Affirmative action requires some organizations to take action to increase the representation of women and minorities. Copyright © 2013 John Wiley & Sons, Inc. 13 ANTIDISCRIMINATION POLICIES IN THE UNITED STATES

Copyright © 2013 John Wiley & Sons, Inc. 14 THEORETICAL IMPACTS OF ANTIDISCRIMINATION LAWS

Copyright © 2013 John Wiley & Sons, Inc. 15 RESEARCH ON THE EFFECTS OF ANTIDISCRIMINATION LAWS - RACE

Copyright © 2013 John Wiley & Sons, Inc. 16 RESEARCH ON THE EFFECTS OF ANTIDISCRIMINATION LAWS - GENDER

Research indicates:  Age discrimination laws are associated with increased employment of older workers.  ADA is associated with lower levels of employment of disabled workers Copyright © 2013 John Wiley & Sons, Inc. 17 AGE AND DISABILITY

QUESTIONS/DISCUSSIONS Copyright © 2013 John Wiley & Sons, Inc List and explain three reasons why we observe a wage differential when comparing the average wages of males and females. 2.What is an earnings ratio? What does it mean if the female/male earnings ratio is equal to 1? What does it mean if the black/white earnings ratio declines?

Copyright © 2013 John Wiley & Sons, Inc. 19 KEY CONCEPTS Earnings ratio Pay gap Discrimination Taste-based models of discrimination Employer discrimination Customer discrimination Statistical discrimination 1964 Civil Rights Act Affirmative action