Transcript Discrimination and Market Fragmentations

Discrimination and Market
Fragmentations
Theory and Evidence based on
Darity and Mason (1998)
Background
• Discrimination was pretty much persistent up
until the Civil Rights movement
– Observed in wages and prices
– Directly observed in newspaper adds
• Disparities seemed to close until the mid 70’s
or early 80’s at best but then there has been a
halt.
• Wage gaps are the same today as they were in
1979, as are our explanations for these gaps
– (we may be able to get evidence of this ourselves
in class)
Theory
• Standard neoclassical competitive models are forced by their
own assumptions to the conclusion that discrimination only
can be temporary
• Taste based discrimination may or may not cause wage
differences. Think of a model of white and black business
owners that are able to sell their goods in a common market.
– With competitive enough markets there may be segregation of labor
but not wage differentials.
– The result is similar to Factor Price Equalization in models with free
trade
• Consumer discrimination theory (the consumer being
discriminatory makes it profitable for the business to
discriminate)
– Cannot sustain long term differences if there is an “anonymous”
sector with no client contact
Statistical Discrimination
• A story of imperfect information
• Unobserved, perceived group differences can
lead to discrimination
– Have to be Unobserved and don’t have to be
“average” differences.
– Wider variance and non-risk neutral agents will work
too
• Still there is the question of why don’t employers
learn?
– “…It seems implausible that with all the resources that
corporations put into hiring decisions, the remaining
differentials are due to an inability to come up with a
suitable set of questions or qualifications for potential
employees.”
Is there empirical evidence of Discrimination?
• Labor markets, housing, credit, durables and
services
• Legal cases, audit studies, statistical analyses
• Statistical
– Census data find a wage gap
– NLSY data close 2/3 of the gap for men and all for
women by adding AFQT.
– Only 40%-50% of the gap is closed if AFQT is adjusted
for education and age
– Sometimes it is difficult to adjust for both
• Have to wonder why men but not women
– Unlikely to be related to schooling quality
More evidence
• Skin shade research finds significant skin shade effects
– black racial identity and a dark skin tone reduces an individual's odds of
working by 52 percent, after controlling for education, age, and criminal
record
• Audits find evidence of large gaps in interviewing and hiring
– White testers were close to 10 percent more likely to receive
interviews than blacks.
– Among those interviewed, half of the white testers received
job offers versus a mere 11 percent of the black testers.
– When both testers received the same job offers, white testers
were offered 15 cents per hour more than black testers.
– Black testers also were disproportionately "steered" toward
lower level positions after the job offer was made, and white
testers were disproportionately considered for un-advertised
positions at higher levels than the originally advertised job.
• Critique by Heckman is that one can’t really create
identical candidates (mannerisms, first impressions, etc.)
– To avoid this they do in-personal tests and same pair many
businesses test (mostly worked for gender)
Alternative Theories
• Self Fulfilling Prophecy: A mistaken prior
introduces a labor market disruption that creates
an actual disadvantage for the discriminated
group
– Problem: Why not “Blondes”?
• “Group Monopoly” theory. Group A finds itself to
gain from discrimination and achieves enough
group cohesion to keep this going
– Educated blacks were punished at some point
– No evidence of discrimination in the part of brazil
where blacks were uneducated but there was
discrimination in parts where Blacks were educated
– This suffers from the same critique; why don’t some
make a profit out of hiring the discriminated
individuals?
What do you think?
•
•
•
•
Orchestras and women
One male-female pair in many restaurants
Income in businesses and discrimination (Taste)
Employer learning doesn't seem to reduce racial
gap (consider turnover as well)
• Evidence based on names
• Evidence based on language
• Evidence based on game shows