Labor Market Discrimination

Discrimination

By Employer, Customer, and Employee

Labor Market Discrimination

The definition of Labor Market Discrimination is: It exists when 2 equally qualified

individuals are treated differently solely on the basis of their gender, race, ethnicity, disability, etc.

Feed Back

If such behavior is encountered it is only logical that those being affected by this labor market discrimination view the returns on human capital investment to be lower

Consequently they will have less incentive to invest in human capital

Feed Back

Furthermore, if this “feed-back” is widely spread such as to be “known” by younger individuals it could even lead to many dropping out of school or not pursuing higher education or advanced degrees

Subtle and Not so Subtle Barriers

In 1991 a jury found in favor of a woman executive at Texaco who was not promoted because of concerns that the promotion would have required her to travel to Latin America and South Africa where “she might be raped or murdered.”

Subtle and Not so Subtle Barriers

Woman working for GTE (now Verizon) California was promoted between 1977 and 1982 but was then told by her boss that no further promotions would be possible since "women were not suited for managerial positions as they lacked military training".

Glass Ceiling

In 1991 as part of the Civil Rights Act of 1991 21 member committee was formed and chaired by the Labor secretary to determine if there was a “glass ceiling” in the upper management of American firms

Glass Ceiling

In terms of the findings of the commission

There is a glass ceiling and the derives from three sources: Societal/Non-Market Business Government

Glass Ceiling In terms of those reasons under the control of

business are: Outreach and recruitment practices that do not seek

out or reach or recruit minorities and women Corporate climates that alienate and isolate

minorities and women Pipeline Barriers that directly affect opportunity for

advancement Initial placement and clustering in staff jobs or in

highly technical and professional jobs that are not on the career track to the top

Glass Ceiling

In terms of those reasons under the control of business are (continuation):

Lack of mentoring Lack of management training Lack of opportunities for career development,

tailored training, and rotational job assignments that are on the revenue-producing side of the business

Glass Ceiling

In terms of those reasons under the control of business are (continuation):

Little or no access to critical develop mental assignments such as memberships on highly visible task forces and committees

Special or different standards for performance evaluation

Glass Ceiling

In terms of those reasons under the control of business are (continuation):

Biased rating and testing systems Little or no access to informal net-works

of communication Counterproductive behavior and

harassment by colleagues

Glass Ceiling

In terms of those reasons under the control of government are:

Lack of vigorous, consistent monitoring and law enforcement

Weaknesses in the formulation and collection of employment-related data which makes it difficult to ascertain the status of groups at the managerial level and to disaggregate the data

Inadequate reporting and dissemination of information relevant to glass ceiling issues

Measuring Discrimination

However, measuring discrimination is not that simple

For instance, Looking at only wages does not represent

the true level of discrimination since it is likely that personal characteristics may account for some of that disparity

Measuring DiscriminationGender Wage Ratio

010

2030

4050

6070

8090

Unadjusted

UnadjustedData

Human CapitalAdjustments

All VariableAdjustment

The Overcrowding Model

The labor market exhibits SEGREGATION

Consequently: Some jobs are male jobs other are female

jobs Some jobs are white jobs other are minority

jobs

The Overcrowding Model

Assume that workers F and M (female and male) are perfect substitute for each other (i.e. they are homogenous)

Let the labor market be divided into two type of jobs. Job type F accounts for a quarter of the jobs available and job type M accounts for three quarters of the jobs available.

The Overcrowding Model

At first assume that both jobs on average pay the same wage.

Under this circumstances then we would have the following graph

The Overcrowding Model

F type Jobs M type Jobs

w

$ $

L L

S S

DD

The Overcrowding Model

Now assume that at least one of the following is possible: M workers can move easily between job types, yet

F workers can not. F workers can find F type jobs but can enter into M

type jobs. F workers prefer to work only F type jobs Employers of M type jobs will not hire F workers Some other reason that will concentrate F workers

only to F type jobs

The Overcrowding Model

Based on the previous scenarios: Workers will begin to concentrate in F type

jobs There will be less available workers for M

type jobs In a sense, F type jobs become less

“important” than M type jobs or F type jobs become subservient to M type

jobs

The Overcrowding Model

F type Jobs M type Jobs

w

$ $

L L

S S

DD

wF

wM

LF LM

The Overcrowding Model

After the overcrowding in the F type jobs the result is that The wages in the F type jobs are lower

than the wages in the M type jobs (i.e. wM>wF)

This time, F type jobs account now for more than a quarter of the jobs available (LF) and M type jobs accounts for less than three quarters of the jobs available (LM) .

Models of Labor Market Discrimination

Tastes for Discrimination Gary Becker conceptualized discrimination

as a personal prejudice U=U(,W,B) Where U is the utility of the employer are the profits W is the number of White workers And B is the number of Black workers

Gary Becker

He then assumed that U/ > 0 U/W > 0 U/B < 0 Assuming that both White and Black

workers are homogenous

Gary Becker

The normal assumption that workers will be paid

MP*L = w*

Will then become MP*L = w*W

MP*L = w*B(1 + d)

Where d>0

Gary Becker

Hence, w*W = w*B(1 + d)

or w*m = wf*(1 + d)

Where d>0 or w*f / w*m = 1/(1 + d)

EMPLOYEE DISCRIMINATION COEFFICIENTS AND WILLINGNESS TO HIRE

EMPLOYER d

NET WAGE[w X (1+ dj)], IF

wf = $10.00

MAXIMUM WAGE WILLING TO PAY WOMEN, IF

wm = $10.00

A 0 $10.00 $10.00

B 0.25 $12.50 $8.00

C 1 $20.00 $5.00

D 3 $40.00 $2.50

E 9 $100.00 $1.00

THE DEMAND FOR WOMEN WORKERS, EMPLOYERS A TO E

$10.00

$8.00

$5.00

$2.50

$1.00

10 20 30 40 50

Wf

SUPPLY

DEMAND

NUMBER OF WOMEN

WOMEN’S WAGES WHEN EMPLOYERS’ DISCRIMINATION COEFFICIENTS DIFFER

DEMAND

SUPPLY

Wf/Wm

NUMBER OF WOMEN

1/(1+d*)

MARKET EQUILIBRIUM BEFORE AND AFTER ENTRY

SUPPLY

DEMAND BEFORE ENTRY

DEMAND AFTER ENTRY

NUMBER OF WOMEN

Wf/Wm

1/(1+d*)

1

Gary Becker

If the market was purely competitive the Becker discrimination model would not persist

However, it can persist if: If the firm has “monopsony” power If supervisors are discriminating If the employees are discriminating If the costumers are discriminating

Statistical Discrimination

Similar in Context to Racial Profiling Statistical Discrimination against the

individual If the preconceptions is based on accurate

average observations Then there are feed-back effects that

increase the level of discrimination

Customer Discrimination

If Customers do not care who the employees are then the price will be the same whether the employee is male or female (white or black; asian or hispanic)

thus pf* = pm*

Customer Discrimination

If on the other hand the customer prefers male employees than pf*(1 + d) = pm*

If the customer prefers females than pm*(1 + d) = pf*

The one characteristic of this model is that there is market reason for the discrimination to be eradicated.

Employee Discrimination

If m type worker does not like working alongside with f type worker than w*m = wm(1 - d)

Thus, the gross wage of the m type worker would be lowered

If there are two types of jobs (1 and 2) and workers in 1 are only m type and workers in 2 are both m and f, then

Employee Discrimination

If there are two types of jobs (1 and 2) and workers of both type (m and f) in each job type but only m type workers in job type 2 do not care to work with f type workers,then w*1m = w2m(1 - d)

such that w*1m < w2m

Statistical Models

Statistical Discrimination The employer may use “generalized”

information about the employee and may due to that discriminate even based on what may be “actual” or “perceived” information such that wages differ

STATISTICAL DISCRIMINATION BASED ON DIFFERENT DISTRIBUTIONS OF LABOR FORCE

ATTACHMENT FOR MEN AND WOMENPERCENT

ATTACHMENT TO LABOR FORCE

WOMEN MEN

W M

STATISTICAL DISCRIMINATION WHEN THE DISTRIBUTION BY GENDER ARE VERY SIMILAR

PERCENT

ATTACHMENT TO LABOR FORCE

WOMEN

MEN

W M

Human Capital Theory

Solomon Polachek discussed the idea of jobs that provide a smaller or larger penalty of leaving the workforce for some amount of time

If both jobs have the same level skill but one gives a larger penalty for exiting the job for a given period of time (occupation k)

THE HUMAN CAPITAL EXPLANATION OF OCCUPATIONAL SEGREGATION BY GENDER-THE

ROLE OF WAGE PENALTIES TO PERIODS OF NONWORK

W

TIME

(A)

OCCUPATION j

A

C

D’

D

B

E

A

C

D’

D

B

E

(B)

OCCUPATION kW

TIME

Institutional Models

These models assume that the discrimination occurs as part of the organizations internal structure.

It is based on the notion that firms management structure is build upon internal institutional arrangements that have either deliberate or unintentional discrimination repercussions

Institutional Models

There are primarily there Institutional models (which can work separately or in conjunction) The internal Labor Market Primary and Secondary Jobs Feedback Effects

Internal Labor Market

The assumption is that certain firms will generally only promote from within. If for whatever reason, entry level jobs attracted a

certain type of worker or if only certain type of worker will be retained or if only certain type of worker will stay in that job Then upper management will be composed of that

type of worker that remains in that entry level position

Internal Labor Market

Wag

es (

$)

Job Ladder

Firm-Specific Training

Primary and Secondary Jobs

The assumption is that certain firms will generally only promote from a certain type of entry jobs.

In other words, some entry jobs will only allow the workers to reach certain heights within the organization

Internal Labor Market

Wag

es (

$)

Job Ladder

Primary

Secondary

Feedback Effects

Some times employees and employers may discriminate by bringing into the work place the behavior exhibited in the household

So gender roles played in the household labor

are parallel in the work labor

Feedback Effects

Gender Division

of Labor in

the family

Gender Differences

in Labor Market

outcomes