Transcript CH. 12: GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET

CH. 12: GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET
Chapter objectives:
 Document levels and trends in earnings differentials by
gender and race.
 Provide economic theories of wage discrimination.
 Review evidence on whether earnings differentials are
due to discrimination
Figure 12.1 Mean Earnings as a Percentage
of White Male Earnings, Various Demographic
Groups, Full-Time Workers over 24 Years Old,
2008
Source: 2000 Economic Report of the President
Measuring Discrimination
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The Blinder-Oaxaca Decomposition
Y1=a1 + b1*x1
Y2=a2 + b2*x2
Y1-Y2 = EXP + UNEXP
where EXP = (x1-x2)*b1
UNEXP = (a1-a2) + (b1-b2)*x1
2000 Economic Report of the President:
• A recent study using longitudinal data from the late 1980s found
that
• about one-third of the pay gap was explained by differences in
the skills and experience that women bring to the labor market.
• about 28 percent of the gap was due to differences in the
industries and occupations in which men and women worked
and in their union status.
•Accounting for these differences raises the ratio of female to male
median wages for the late 1980s from about 72 percent to about 88
percent, leaving around 12 percent unexplained.
2000 Economic Report of the President:
• Even as several beneficial trends have tended to boost women’s
wages relative to men’s and helped narrow the male-female wage
gap, two major trends have worked simultaneously to widen it.
•increases in the pay premium for high skills
(education/experience)
•Rising disparity in earnings across occupations (wages in
“male” occupations are rising faster).
2000 Economic Report of the President:
Economic Theories of Discrimination
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Employer Discrimination
Employee Discrimination
Customer Discrimination
Monopsonistic Discrimination
Employer Discrimination
Figure 12.2
Equilibrium Employment of Women or Minorities in Firms That
Discriminate
Employer behaves as if minority worker’s true MRP is MRP-d where d is
measure of employer prejudice against minority.
Firm pays for discrimination in the form of lower profits (BFG).
Employer Discrimination
Figure 12.3
Market Demand for Women or Minorities as a Function of
Relative Wages
Non-discriminating
employers generate
horizontal portion of
demand curve.
Discriminating
employers generate
downward sloping
portion of demand
curve.
Over time, nondiscriminating
employers should
drive discriminating
employers out of
business.
Employer Discrimination
Statistical discrimination.
Each worker’s productivity is measured with some error:
true productivity = measured productivity + error
If expected value of error depends on demographic group,
can use group status to improve estimate of productivity.
As variance of error within a group rises, the value of
discriminating on basis of group status is reduced.
Profitable to firm and may persist.
Review of Economics and Statistics, 1989
Employer Discrimination
Monopsonistic discrimination.
If search costs create upward-sloping labor supply
curves to individual employers, and if discrimination
raises the search costs of certain groups of workers,
monopsonistic behavior creates wage differentials
among otherwise identical workers.
Profitable for firm & may persist.
Evidence on Monopsonistic Discrimination
Monopsonistic Discrimination and the Gender Wage Gap,
by Erling Barth, Harald Dale-Olsen, June 1999
• Using matched employer-employee data from Norway, we
investigate the wage structure within and between
establishments, and present novel evidence that the
establishments' excess turnover of employees is sensitive
to the wage premium of men, but not to the wage premium
of women. Furthermore, we show that male turnover is
more wage-elastic than female turnover.
Evidence on Employer Discrimination
American Economic Review, September 2004
Employee Discrimination
•Suppose employees from majority work dislike working
with the minority group.
•Employee discrimination generates supply-related
behavior that might cause employers to segregate their
plants by race or sex if possible.
•If not, wage differentials arise as a result of the need of
employers to retain workers in the majority group.
• Could be profitable for firm and may persist.
• Difficult to find empirical evidence on employee
discrimination.
Customer Discrimination
•MRP for minority group is reduced because customer is
willing to pay higher price for product when provided by
majority group.
•Customers pay for prejudice in form of higher prices.
•Profitable for firm and may persist.
Evidence on Customer Discrimination
Quarterly Journal of Economics, August 1998
Evidence on Customer Discrimination
Journal of Labor Economics, January 1988.
Evidence on Customer Discrimination
% of waitstaff that is male rises with % of clientele that is male,
but independent of sex of owner’s managers
Quarterly Journal of Economics, August 1996