1. The Economics of Discrimination Prof. G. Loury EC 1370 March 16, 2010

2. 1. Standard economic theory (Becker) suggests wage discrimination cannot persist as an equilibrium phenomenon in competitive labor markets. 2. Gross wage and employment differences by race are large and persistent. 3. Attitude measures show declining but still persistent “racial prejudice”. 4. Measures of cognitive skills show large and persistent racial differences. 5. So, is the racial wage/employment gap due to discrimination or to skill differences between the groups? 6. We examine evidence from five recent studies which suggest that racial discrimination in the labor market remains a serious problem: a. Charles and Guryan document role of “racial prejudice” b. Urzua investigates role of cognitive and non-cognitive skills. c. Lang and Manove show that blacks of given ability get more education than do comparable whites. d. Vigdor shows racial wage convergence in US South largely due to improved quality of education for younger cohorts e. Pager use of “testers” reveals employers’ discriminatory choices. EC 1370 Lecture Summary: The Economics of Discrimination, 3/16/2010

3. Per Capita Annual Hours of Employment for Native-Born Non-Hispanics Aged 25 to 59; 1968 to 2007

4. Median Wage and Salary Earnings for Native-Born Non-Hispanics Reporting Earnings

5. (Showing that racial prejudice still affects black/white wage gap, and that what really matters is degree of prejudice of the marginal, not the average employer.)

7. Racial Attitudes of National Samples of Whites; General Social Survey, 1972 to 2004

9. Dependent Variable = ln(wages); “x” indicates “factors controlled for”

11. 2008 (Showing the importance of non-cognitive skills when accounting for black/white wage differences.)

16. (Documenting that, conditional on cognitive ability score, black US workers, male and female, obtain more education than do whites.)

21. (Accounting for trends in black/white wage gaps in the South and establishing a key role for schooling quality in explaining the trend.)

27. (Together with Pager (2003) using “tester” experimental data to establish the reality of racial discrimination in the labor market for young unskilled males in NYC and Milwaukee, emphasizing the debilitating effects for blacks of having a criminal record.)

41. Similar Results with Milwaukee Data