EC 480 Lecture Week 6

8/10/2019 EC 480 Lecture Week 6

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EC 480

LABOR ECONOMICS

LECTURE WEEK 6:1. Immigration

2. Race, Gender, & Ethnicity

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OBJECTIVES

1. Explain the microeconomic approach to

immigration, i.e. the individual choice to

migrate.

2. Distinguish between an analysis of immigrant

labor markets based on skill and one based on

race and/or ethnicity.

3. Analyze the impact of race, gender and ethnicity

on labor market outcomes including earnings,

unemployment and labor force participation.

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OBJECTIVES

4. Assess the importance of occupational

segregation in determining labor market

outcomes.

5. Evaluate the various economic theories of

discrimination.

6. Evaluate the importance of institutional factorssuch as the social, political, and legal

environment in affecting labor market

outcomes.

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LECTURE 1: IMMIGRATION

The text discusses other aspects oflabor market mobility such as

turnover.

This lecture is intended to supplementthe text with a more complete

treatment of the topic of immigration.

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THEORIES OF

IMMIGRATION

I. Individual Choice Framework

A. Microeconomic View

B. Sociological View

II. Macroeconomic View

A. Labor Market institutions

B. Legal factorsC. Political considerations

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THEORIES OF IMMIGRATION



Labor Market Analysis

B. Sociological View Migrant Network Theory

Focus in both is on:

Explaining the behavior of the individual

migrant

Migration is viewed as an individual choice. 6


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THEORIES OF IMMIGRATION:

MICROECONOMIC VIEW



1. Labor Supply Human Capital Theory

2. Labor Demand

skilled vs. unskilled labor.3. Labor Market Impact

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MICROECONOMIC VIEW

I. Labor Supply

Migration is viewed as an individual choice.

The decision to migrate has costs and

benefits.

The costs occur in the present, the benefits

accrue in the future.

Migration has the same characteristics as a

Human Capital investment

Workers will migrate if the net present value

of migration is greater than zero. 8


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NET PRESENT VALUE OF MIGRATION

Vp= present value of net benefits

E2= earnings from new job in year n

E1= earnings from existing job in year n

N= length of time expected on new job.

i= interest rate

n= year in which benefits and costs accrue

C = direct and indirect monetary costs resulting from move in the yearn

Z= net intangible costs (intangible costsintangible gains).

9

N

n

N

n

nnP Zi

C

i

EE

V1 1

12

)1()1(


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IMMIGRATION AND THE LABOR

SUPPLY: THE MICROECONOMIC VIEW

The greater the differences in economic

opportunities between a sending country, and a

receiving country, the larger the number of

persons who will migrate from the low-income

country to the high-income country

The more expensive it is to migrate from one

country to another, the smaller the number of

persons who will choose to do so. (Borjas 1999, 6).

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IMMIGRATION AND THE LABOR SUPPLY:THE MICROECONOMIC VIEW

Age

Older individuals are less likely to migrate.

Older migrants have fewer years to recoupinvestment costs. i.e. benefits are lower.

Older people have greater firm-specific humancapital. i. e. costs are higher.

Education

Migration is more likely as education levels rise.

The market for more highly educated workers is

regional/national/international rather than local.

The gain from migration may be greater due to

greater variability in workers and positions.

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IMMIGRATION AND THE LABOR

SUPPLY: THE MICROECONOMIC VIEW

Distance

The probability of moving falls with the distance the

person must move.

The probability of moving falls with the transportation

costs.

Unemployment rates

Households headed by unemployed persons are more

likely to move. The unemployment rate at the origin location positively

affects the probability of out-migration.

The unemployment rate at the destination location

negatively affects the probability of in-migration. 12


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MICROECONOMIC VIEW

II. Labor Demand

Microeconomic approaches do not

distinguish between immigrant and non-immigrant labor demand.

The distinction is between skilled and

unskilled labor.

Skilled and unskilled labor are viewed as

complementaryinputs.

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MICROECONOMIC VIEW

Labor markets behave in a manner similar to other

markets, a greater supply of a given type of labor

tends to depress the market wage of workers with

similar characteristics.

An increase in the supply of a given type of worker

also increases the productivity of the complementaryfactors of production...

(Barry Chiswick 2006)


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MICROECONOMIC VIEW

Skilled immigrants

Increases supply in the market for skilled

workers and lower the wage.

Lower wage will reduce quantity supplied

of resident workers.

Increase quantity demanded of skilled

workers will increase demand for

unskilled workers.

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LABOR MARKETS:

MARKET FOR SKILLED WORKERS

Labor

wage

D

S (resident)

w*

L*

S (residents + immigrants)

w

LLn

Impact of an increase in the supply of skilledimmigrants.


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LABOR MARKETS:

MARKET FOR UNSKILLED WORKERS

Labor

wage

D

S (natives)

w*

L*

w

L

D

Impact of an increase in the supply of skilledimmigrants.


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THEORIES OF IMMIGRATION


B. Sociological View

Migrant Network Theory

Looks at non-economic factors that may

influence benefit and costs of migration.

Interpersonal ties and community

influences are sometimes called, social

capital.

Analysis expands human capital approach

by considering other factors. 18


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MIGRANT NETWORK THEORY

Migrant networks are sets of interpersonal ties that connect

migrants, former migrants, and nonmigrants in origin and

destination areas through ties of kinship, friendship, and

shared community origin. The existence of these ties ishypothesized to increase the likelihood of emigration by

lowering the costs, raising the benefits, and mitigating the

risks of international movement. (Massey 1994)

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II. Macroeconomic ViewA. Labor Market institutions

Wage Structures

Wages of different occupations areaffected by social and historical

conventions.

Job opportunity

Mobility between markets may be

reduced by worker characteristics

unrelated to skill, i.e. race, Ethnicity,

national origin, legal status.

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LABOR MARKET INSTITUTIONS:

THE WAGE STRUCTURE:

The wageplays a social function: it confers

status and prestige

people have very different notions about what

the appropriate wage relationships are among

different kinds of work.

They expect the wage structure and the hierarchy

of status and prestige to coincide(Piore 1979).

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LABOR MARKET INSTITUTIONS:

THE WAGE STRUCTURE:

It is simply inconceivable to a restaurateur that he

can raise the wage of the dishwasher and the

busboy without paying more to the waiter and the

cook as well;

the hospital administrator cannot envisage paying

more to orderlies without paying more to nurses;

if the warehouseman gets more in a shoe plant,the production workers will get more as well, and

you cannot pay stitchers a higher wage than you

pay cutters. (Piore 1979).

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B. Legal Factors

Labor market outcomes for immigrants are

affected by legal status.

Legal residentGreen card

Temporary Work PermitsH1B and H2A

Job is linked to specific employer.

Undocumented workers Individuals with Visaslegally present in the US,

but not legally permitted to work.

Individuals without Visasnot legally present in

the US. 23


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C. Political Considerations

National and Local Politics

Attitudes toward immigration varywidely.

Impacts of immigration also vary.

Heated political debate overimmigration may adversely affectlabor market outcomes of immigrantworkers.

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THEORIES OF IMMIGRATION:II. Macroeconomic View

C. Political Considerations Fiscal Implications:

Increased demand on schools, health care, and other

social services.

Taxes and social security are withheld from allemployees paychecks including immigrant workers.

Lack of payment of taxes due to legal and

employment status. Underground economy

workers paid in cash under the table.

Over all fiscal effect nationally may be positive or

neutral but local impacts may be negative.

Taxes paid to federal government, but costs paid by

local governments. 25


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CURRENT IMMIGRATION DEBATE

Economic Analysis vs. Economic Justice

Realistically, well need to reduce the inflow of

low-skill immigrants. But the harsh anti-

immigration legislation...that would, among other

things, make it a criminal act to provide an illegal

immigrant with medical careis simply immoral

(Krugman, March 27, 2006).

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Microeconomic

View

Problem:

Excess supply ofunskilled immigrants.

Solution:

Reduce supply throughrestriction and

enforcement.

Institutional View

Problem:

Lack of Bargainingpower in low wage

labor markets

Solution:

Improve balance ofbargaining power for

low skill workers.


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COMPLEMENTARY LABOR: MICROECONOMIC VIEW

Lower wage for high skill workers.

Reduced demand for complementary high skillworkers

Reduced demand for low skill workers

Higher wage for low skill workers

Reduced supply of low skill immigrant workers fromMexico and Central America.

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COMPLEMENTARY LABOR: INSTITUTIONAL VIEW

Reduced demand for low skill workers

Reduced demand for complementary high

skill workersLower wage for high skill workers.

Wage for low skill workers remains the same?

Greater lobbying effort for guestworker programs?

Increased supply of low skill workers from other regions suchas Asia, or from secondary labor markets in US.

Higher demand for low skill workers.

Labor constraints in sectors employing large numbers oflow skill workers.

Reduced supply of low skill immigrant workers fromMexico and Central America.


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http://siteresources.worldbank.org/INTLAC/Re

sources/Factbook2011-Ebook.pdf


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LECTURE 2: DISCRIMINATION

The text discusses several economic

theories of discrimination.

This lecture is intended to supplementthe material in the text with an

overview of the topic of discrimination

in Economics.

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LABOR MARKET

DISCRIMINATION

There are distinct differences among groups

(Ethnic, racial and/or gender) in terms of:

Earnings and Income*

Occupations

Employment/unemployment

*Income refers to total household income including incomefrom working and non-work sources such as investments,

capital gains, and transfers. Earnings data are available from

the Bureau of Labor Statistics for usual weekly earnings;

for year-round, full time workers; and for all workers.


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Labor Market Status

2011 averages

Source: The African American Labor Force in the Recovery, US DoL, February 2012.

http://www.dol.gov/_Sec/media/reports/blacklaborforce/
http://www.dol.gov/_Sec/media/reports/blacklaborforce/http://www.dol.gov/_Sec/media/reports/blacklaborforce/http://www.dol.gov/_Sec/media/reports/blacklaborforce/


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Labor Market Status

2011 averages




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Source: Highlights of Womens Earnings 2010, US BLS, July 2011.

http://www.bls.gov/cps/cpswom2010.pdf
http://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdf


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Source: Highlights of Womens Earnings 2010, US BLS, July 2011.

http://www.bls.gov/cps/cpswom2010.pdf

In 2010, median
http://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdfhttp://www.bls.gov/cps/cpswom2010.pdf


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usual weekly

earnings of Asian

men ($1,408) and

White men

($1,273) workingfull time in

management,

professional, and

related occupations

(the highest paying

major occupationgroup) were well

above the earnings

of Hispanic men

($1,002) and Black

men ($957) in thesame occupation

group.Source:

http://www.bls.gov

/opub/ted/2011/te

d_20110914.htm
http://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htmhttp://www.bls.gov/opub/ted/2011/ted_20110914.htm


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LABOR MARKET DISCRIMINATION

Do groups have different unemployment

rates and earn different wages because:

There are differences in productivity?

They are in different jobs?

There is discrimination?


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DISCRIMINATION

Discriminationexists when female or minorityworkerswho have the same abilities,

education, training, and experience as white

male workersare accorded inferiortreatment with respect to hiring, occupational

access, promotion, wage rate, or working

conditions.


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TYPES OF DISCRIMINATION

Wage discrimination

Female or minority workers are paid less thanmale (white) workers for doing the same work.

Occupational job discrimination

Minorities and women are arbitrarily restrictedfrom entering some occupations, even thoughthey are as capable as white male workers.

Employment discrimination

Minority and women bear a disproportionate

share of unemployment.


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TYPES OF DISCRIMINATIONPost-market discrimination

Occurs aftera person has entered the labor market

Wage discrimination

Employment discrimination

Occupational job discrimination

Pre-market discrimination

Occurs before a person has entered the labor market

Example:

Minorities have less access to productivity-increasingopportunities such as formal schooling or on-the-jobtraining


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PRE-LABOR MARKET

INEQUALITY

Differences in opportunities to attain skill,attend college or gain work experience.

These problems occur prior to entering the

labor market. This type of inequality is generally not

measured by labor market discriminationstudies.

One aspect of pre-market inequality is therising cost of education and the differentialimpact (See next slide).

These differences contribute to unequal labor

market outcomes. 46


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LABOR MARKET

DISCRIMINATION

Education and Earnings:

Human capital model posits that there

should be a positive relationship between

education and earnings.

Statistical studies, therefore, take education

into account and compare workers with

comparable educational levels.

The remaining differences that are not due

to differences in education must be

explained. 48


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PERSONAL PREJUDICE MODELS OF


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PERSONAL PREJUDICE MODELS OF

DISCRIMINATION: COMMENTS Developed in early 1970s by economist, Gary Becker.

Analyzes discrimination as a personal choice by employers:1) Because they are prejudiced.

2) Because they believe their customers are prejudiced.

3) Because they believe their employees are prejudiced.

Concludes that discrimination is costly and inefficient. Thus,competitive market forces will eliminate discrimination.

The persistence of this type of discrimination must indicate theexistence of imperfect competition or market failure.

Criticisms: Since improvements in labor market discrimination occurred

only after an extended Civil Rights struggle and legislation,

theory cannot be tested.

Does not provide a rationale or explanation for discrimination

beyond personal preference.


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STATISTICAL DISCRIMINATION: COMMENTS

This theory presents discrimination as a rational

response to an information problem.

Statistical discrimination exists when employers

base decisions upon the average characteristics

of the group to which they belong.

Example: insurance rates are higher for

male, teenager drivers. Based on actuarial

tables.What if the assumptions about productivity

and/or behavior of the group are not correct?i.e. just operating from old stereotypes?


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THEORIES OF DISCRIMINATION:


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THEORIES OF DISCRIMINATION:

OCCUPATIONAL SEGREGATION

Definition:

Different distributions of men and women

or different racial or ethnic groups across

occupations, jobs, and places of work.

Inequality occurs because women and

minorities are in differentjobs, notbecause they are paid less in the same

job.

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LABOR MARKET CROWDING

CROWDING THEORY


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CROWDING THEORY:

COMMENTS

Crowding increases supply and lowers wage in one labormarket

The key is the existence of barriers to mobility. i.e. someobstacle prevents women or minorities from moving to

higher wage labor market.

That is, labor market discrimination occurs by creating abarrier to mobility.

Historically developed to explain lower wages forwomen in womens jobs vs. higher paid mens jobs.

For a recent article using crowding to analyze wagedifferences between Black and White men, see

http://www.epi.org/publication/whiter_jobs_higher_wages /

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http://www.epi.org/publication/whiter_jobs_higher_wages/http://www.epi.org/publication/whiter_jobs_higher_wages/http://www.epi.org/publication/whiter_jobs_higher_wages/http://www.epi.org/publication/whiter_jobs_higher_wages/


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OCCUPATIONAL SEGREGATION EXAMPLESWHICH OF THESE ARE MEN? WOMEN? COULD BE EITHER?

AccountantArchitect

Auto mechanic

Bookkeeper

Carpenter

CEO

Chef

Coal miner

Construction Worker

Cook

Economist

FirefighterGeologist

Kindergarten teacher

Nanny

Nurse

Nurses aide

President

Professional Athlete

Receptionist

Secretary

Security Guard

Documents

EC 480 Lecture Week 6