Transcript Labor Market Discrimination

Labor Market Discrimination
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Labor Market Discrimination
This discrimination would occur if two equally qualified
individuals were treated differently based solely on the basis of
gender, (or race, or religion,…).
A study results are below
Characteristics
Human cap only
Ed. Attainment
0.3
Labor force experience
30.8
Race
1.8
Occupation
Industry
Union Status
Unexplained
67.1
Total
100
Wage differential
27.6
All variables
0.3
26.2
1.2
7.8
22.6
3.8
38.0
100
27.6
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On the previous screen we have the results of two types of
studies. In the first column we see that the wage differential
is nearly 28%. Of this difference, 0.3, or less than 1% can be
explained by educational differences. 30.8% can be
explained by differences in labor force experience, and 1.8%
can be explained by differences in race. So 67.1% of the
differences in wages can not be explained by the three
variables included. So we could attribute the difference to
discrimination.
The second column includes additional variables that are
thought to impact the difference. Let’s see that next.
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Of this difference in wages, 0.3, or less than 1% can be
explained by educational differences. 26.2% can be explained
by differences in labor force experience, and 1.2% can be
explained by differences in race. Occupation accounts for
7.8%, Industry accounts for 22.6%, and Union Status accounts
for 3.8%. NOW, 38% of the differences in wages can not be
explained by the six variables included. So we could attribute
the difference to discrimination.
Another way to say this is that the ratio of female to male pay
is .724. But, when you incorporate the 3 variables form the
first column, the ratio rises to .805. In other words, when you
look at women with equal characteristics to men, the ratio
rises, although is still not 1. When you look at the 6 variables
in the 2nd column the ratio rises to .882.
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So, with the 6 variables there is still a pay difference. We
would say there is discrimination. BUT, maybe there are other
variables. If so, then the measure of discrimination we have
here is overestimated. In other words, by adding more
variables we would lower the measured discrimination.
Underestimating discrimination may be at work as well.
Women in the past have been discriminated against in certain
occupations. So they quit going into those occupations in the
numbers they normally would have. The numbers in the
second column before would reflect only those women
currently there.
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Models of Discrimination
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An economist, Gary Becker, suggested a model to explain
discrimination in the economy. He suggested people have a
taste for discrimination. In his model, employers, employees
and customers may all have discriminatory tastes.
Examples:
Employers will hire women as secretaries, but not as pipe
fitters, men will work with women in subordinate positions, but
not as equals, and customers will buy clothes from a female
sales associate, but not hire female lawyers.
Becker postulated individuals with tastes for discrimination act
as if nonpecuniary costs are associated with interaction.
Pecuniary refers to money. Thus, nonpecuniary costs refer to
costs that are not monetary in nature.
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You may have heard my story of why you do not see one person
eat the whole bowl of chips at a party, even when the chips are
free in terms of money. Most of us would feel the “social” cost
of eating the whole bowl. We would not want to have others see
us do this. This is an example of nonpecuniary costs.
Again, Becker postulated that folks have a discriminatory
“taste” and in a model he suggested we would have a measure
of this taste with a discriminatory coefficient d. d is a monetary
equivalent to the degree of cost the individual feels in the
situation. Thinking about the chips example again, there is
likely to be a price per chip that would have the individual stop
at the same number of chips they take when feeling the social
stigma.
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Employer Discrimination
For the employer, dr is the monetary value of the nonpecuniary
cost if hiring a women. The cost of hiring a man would be wm
and the cost of hiring a women would be wf + dr, or
Cost of hiring
a man
a women
wm
wf + dr
We are assuming here that men and women have the same
productivity. A while back we saw that employers basically hire
workers up to the point where the productivity of the worker is
equal to the cost to the employer. So, a man and a woman
would be equally employable if
wm = wf + dr. This implies the wage to the women would have
to be lower than the wage to the man and thus the woman is
paid less than her productivity value.
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Implications of Becker’s Idea
If an employer has a discrimination coefficient of 0 (meaning
nondiscriminatory), men and women would be paid the
same.
If there is a relatively large number of nondiscriminatory
firms, or relatively few women in the market, maybe all the
nondiscriminatory firms would hire the women. We would
see no pay differential.
When there are relatively many discriminatory firms, women
will have to accept jobs at the lower pay. This seems to be
the case.
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Monopsony power – when you have a single or large buyer (in
% terms) for labor in an area – may be a vehicle to keep pay
differences between men and women. Here is the logic. The
family moves to an area because of the man’s career. When
the woman wants to work, employers know their main option
is to work in town. But, they also know they do not have to
pay them as much because they do not have as many options.
More and more couples live in different towns to get past this,
but is the alternative we want in our world?
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More Discrimination Models
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Employee Discrimination
If a male employee has a taste for discrimination against
women, then he would need a premium in pay to work with a
woman. If wm is the male wage needed to work without
women, then wm + de is the pay needed to work when women
are present.
The employers response to this might be to have separate work
sites and avoid paying the premium de. But if this is too costly,
firms would resort to a wage differential.
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Customer Discrimination
If customers have a taste for discrimination then they will
perceive the cost of goods as p when sold by men, but as p + dc
when sold by women. So women will sell less and appear less
productive, or will sell at a lower price and have less dollar
volume of sales. This makes it look as though females are less
productive.
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The Overcrowding Model
Wage
Wage
Smd
Sfo
Smo
Wmd
Wo
Wfd
Df
Sfd
F jobs
Dm
QL
QL
M jobs
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In the overcrowding model, say there is a demand for jobs that
have traditionally been done by females and there is a demand
for jobs that have traditionally been done by males.
If women are segregated from men in jobs, then we would
expect women to supply labor in the F market and say the
supply is Sfd. The wage there would be Wfd. Men would go to
market M and say the supply is Smd with wage Wmd. You then
see the differential in the wage.
The law of one wage
If segregation were eliminated and people were able to work in
either market, then the wage would move toward Wo in both
markets (we really wouldn’t have two markets then.) Why?
(next screen)
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The folks in the F market see the lower wage and now some
leave F and move toward M. The reduction in the supply in
the F market raises the wage there and the increase in supply in
the M market will lower the wage there. Only when the wages
are the same in both markets will there be no incentive for
folks to move toward the other market.
So why is this called the overcrowding model? With
segregation, women do not have as many options and therefore
overcrowd in the F market. This depresses their wages.
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