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Chapter 14: Labor Market Discrimination
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1. Gender and Racial Differences
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Ratio of Female to Male Hourly Earnings
0%10%20%30%40%50%60%70%80%90%
1973 1978 1983 1988 1993 1998
Fem
ale-
Mal
e E
arni
ngs
Rat
io
Ratio
• The ratio of female to male hourly earnings rose substantially from the late 1970s to the early 1990s and has leveled off since then.
• The wage gap has decreased because the skills of women have risen, the industrial and occupational distributions have shifted in favor of women, and the decline in unionism has decreased male wages more than female wages, and discrimination has declined.
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Ratio of Black to White Weekly Earnings
0%
20%
40%
60%
80%
100%
1973 1978 1983 1988 1993 1998
Bla
ck-W
hite
Ear
ning
s R
atio
Ratio
• The ratio of black to white hourly earnings has not changed much over the past 3 decades.
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Unemployment Rate
0%
5%
10%
15%
20%
25%
1972 1977 1982 1987 1992 1997
Fem
ale-
Mal
e E
arni
ngs
Rat
io
White Male White Female
Black Male Black Female
• The unemployment rate difference
between white female and white males has narrowed over time.
• Blacks have an unemployment rate that is consistently twice as great of those of whites.
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Occupational Distribution by Gender, 2000
0 20 40 60 80 100
Percent Female
Secretaries
Registered Nurses
Elementary School Teachers
Waiters and Waitressess
Retail Sales Workers
Economists
Janitors and Cleaners
Physicians
Taxicab Drivers
Construction Laborers• Women are 47 percent of the employed labor force.
• Women have made significant gains in recent decades into higher paying occupations.
• Women are over-represented in
lower paying occupations such secretaries and elementary school teachers.
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Occupational Distribution by Race, 2000
0 5 10 15 20 25 30 35 40
Percent Black
Nursing Aides and Orderlies
Taxicab Drivers
Janitors and Cleaners
Typists
Retail Sales Workers
Elementary School Teachers
Construction Laborers
Registered Nurses
Physicians
Economists
Waiters and Waitresses• Blacks are 11 percent of the employed labor force.
• Blacks are over-represented in
lower paying occupations such janitors and cleaners and nursing aides and
orderlies.
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Educational Attainment, 1999
• White males are likely to have a college education than females and blacks among
persons 25 and older.• The quality of education received by blacks has generally been inferior that acquired by
whites.
0%10%20%30%40%50%60%
70%80%90%
WhiteMale
WhiteFemale
BlackMale
BlackFemale
High School orMore
College or More
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Earnings by Education, Race, and Sex, 1999
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
Not
Hig
hSc
hool
Hig
hSc
hool
Ass
ocia
te
Bac
helo
r's
Ann
ual E
arni
ngs White Male
White FemaleBlack MaleBlack Female
• Full-time women and black workers earn less than white males at each educational level.
• Black males tend to earn more than black and white females.
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Raw racial and gender differentials on earnings, occupational distribution, and unemployment data must be interpreted with caution. Factors other than discrimination such as
individual choice may play a role.
Non-discrimination Factors
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2. Discrimination and Its Dimensions
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Discrimination exists when female or minority workers—who have the same abilities, education, training, and experience as white male workers—are accorded inferior treatment with respect to hiring, occupational access, promotion, wage rate, or working conditions.
Discrimination
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Wage discrimination Female or black workers are paid less than
male (white) workers for doing the same work.
Employment discrimination Blacks and women bear a disproportionate
share of unemployment. Occupational job discrimination
Blacks and women are arbitrarily restricted from entering some occupations, even though they are as capable as male (white) workers.
Types of Discrimination
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Human capital discrimination Blacks and women have less access to
productivity-increasing opportunities such as formal schooling or on-the-job training.
Post-market discrimination Occurs after a person has entered the labor
market. Wage discrimination Employment discrimination Occupational job discrimination
Types of Discrimination
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Pre-market discrimination Occurs before a person has entered the
labor market. Human capital discrimination
Types of Discrimination
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3. Taste for Discrimination Model
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Becker’s taste for discrimination assumes that discrimination is a “taste” for which a discriminator is willing to pay. Society’s taste for discrimination implies
that it is willing to forego output and profits as the price of discrimination.
Tastes for discrimination arise from sources: Employers Consumers Employees
Taste for Discrimination
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If black and white workers are equally productive, a non-discriminatory employer will randomly hire black and white workers if the wages are the same.
The strength of a employer’s prejudice against black workers is measured by the discrimination coefficient--d. For prejudiced employers, the cost of hiring
a black worker is the worker’s wage (Wb) plus the psychic cost of hiring a black worker (d).
Discrimination Coefficient
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Prejudiced employers will be indifferent between white and black workers when: Ww = Wb + d
A given employer will hire black workers, if the market white-black wage gap is greater than d.
Discrimination Coefficient
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Wage Discrimination in the Labor Market
• The demand for black workers is formed by arraying employers from lowest for highest
discrimination coefficients.
• The horizontal portion of the demand curve is composed of non-discriminating employers.
• The downward sloping portion consists of discriminating employers.
0.8
Q
Sb
Quantity of Black Workers
Wb/ Ww
1.00
Db• The quantity supply of black
workers supplied rises as the black-white wage ratio rises.
• The intersection of the supply and demand for black workers determines the black-white ratio and the number of black workers employed.
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A change in the shape or location of the demand curve will alter the black-white wage ratio. A decrease in discrimination will lengthen
the horizontal portion of the demand curve and reduce the slope of the downward sloping portion. This will raise the black-white wage ratio.
Generalizations
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The size of the black-wage gap varies directly with the supply of black labor. If the supply of black labor is small that it
intersected the horizontal portion on the demand curve, then no wage gap would exist.
Generalizations
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White workers gain since they are protected from competition from black workers.
Black workers lose since they receive lower wages.
Employers that discriminate lose since they incur higher wage costs than if they did not discriminate. Competition will decrease discrimination as
lower cost non-discriminating firms will drive discriminating firms out of business.
Winners and Losers
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4. Theory of Statistical Discrimination
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Statistical discrimination exists when employers base decisions upon the average characteristics of the group to which they belong. Ex: Young males pay higher insurance
rates since they have more accidents on average.
Employers base hiring decisions on imperfect predictors of productivity. Age, education, and experience provide
some information about productivity
Statistical Discrimination
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Employers may use race and gender as well since they also provide information. Gender may provide information on job
commitment since women on average have higher turnover rates.
Race may provide some information about schooling quality since blacks on average go to inferior schools than whites.
Statistical Discrimination
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Employers are not harmed when they practice statistical discrimination. They gain since they minimize hiring costs.
Employers are not being malicious in practicing this type of discrimination. The problem is that workers who have
characteristics different from the average are harmed.
Statistical discrimination will diminish if the average characteristics of the groups converge over time. Male-female turnover rates are converging.
Implications
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Questions for Thought:1. Explain the following statement: “In the taste-
for-discrimination model, discrimination is practiced even though it is costly to do so. But in the statistical discrimination model, it is clear that discrimination pays.”
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5. The Crowding Model: Occupational
Segregation
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• By crowding women into a narrow set of “female”
occupations, men will receive high wage rates of Wm in male occupations, while women will receive low wage rates of Wf in female occupations.
Quantity of Labor
Wag
e ra
te
Dm
Q2
Wm
Q1
We
Male Occs
Df
Quantity of Labor
Wag
e ra
teQ1
We
Female Occs
Q2
Wf
Occupation Crowding
• Employers may practice job segregation if male (white) workers don’t like to work with female (black)
workers.
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Ending occupational crowding would enable females to enter male occupations. Raise the wage rates of women and lower
the wage rates of men. There would be a net gain to society as
domestic output and efficiency would increase.
Ending Discrimination
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Index of Occupational Segregation by Gender
0%
10%
20%
30%
40%
50%
60%
70%
80%
1973 1978 1983 1988 1993 1998
Inde
x of
Seg
rega
tion
Index
• The index of segregation shows the
percentage of women (men) who would have to change occupations for women to be
distributed among occupations in the same proportions as men.
• The index of segregation by gender
has fallen moderately over time.
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Index of Occupational Segregation by Race
0%
5%
10%
15%
20%
25%
30%
35%
40%
1973 1978 1983 1988 1993 1998
Inde
x of
Seg
rega
tion
Female Male
• The index of segregation by race
has fallen moderately over time.
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6. Cause and Effect: Nondiscriminatory
Factors
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Some economists argue that part of the gender wage gap is the result of rational choices made by women.
Women tend to have interrupted work careers to childbearing. Due to their shorter work careers, it is
rational for women to invest less in education and training.
Their stock of human capital will deteriorate will they are out of the labor force.
Rational Choice
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Occupational segregation may be due to women choosing occupations, such as nursing and teaching, with skills that are useful in home production.
The wage gap may be the result of compensating wage differentials. Women may prefer safer jobs, less effort-
intensive jobs, and shorter commute times. Women work fewer hours than men.
More likely work part-time. Full-time women work fewer hours than
full-time men.
Rational Choice
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Some argue that women invest less in human capital because of discrimination. Women stay out of the labor force because
of the low pay in the labor market. If discrimination declined, then more
women may decide to remain single or childless.
Sexual harassment may cause women to drop out of the labor force.
Discrimination as a Cause
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Male-female pay gap Researchers decompose the pay gap into
the portion explained by differences in productivity characteristics and the portion unexplained (discrimination).
Blau-Kahn find that two-thirds of the pay gap can be explained by differences in experience, industry, occupation, etc.
Pay gap has been falling equally due to a rise in relative productivity characteristics of women and a decline in the unexplained gap.
Evidence
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Black-white pay gap Blau-Kahn find that 89 percent of the pay
gap can be explained by differences in productivity characteristics.
The pay gap has not changed much over time. The black-white difference in education has
diminished and thus shrunk the gap. The payoff to education has risen which has
expanded the gap.
Evidence
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Economists differ on whether the unexplained portion over or understates the amount of discrimination. Economists differ on whether unobserved
productivity characteristics favor men or women.
Do the observed productivity characteristics (such as occupation) reflect discrimination?
Controversy
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Questions for Thought:1. “Wage differences between men and women do
not reflect discrimination but rather differences in job continuity and rational decisions with respect to education and on-the-job training.” Explain why you agree or disagree.
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7. Antidiscrimination Policies and Issues
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The Equal Pay Act of 1963 requires that men and women doing the same job to be paid the same. Firms could avoid the law’s requirements
conducting employment discrimination (e.g., not hiring females for jobs held by males) .
Equal Pay Act of 1963
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The Civil Rights Act of 1964 outlaws both wage discrimination and employment discrimination. Applies to race, gender, color, religion, and
national origin. Applies to private employers, labor unions,
and governments.
Civil Rights Act of 1964
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Executive orders in 1965 and 1968 attempted to eliminate discrimination by businesses holding government contracts.
Firms with more than $50,000 of government contracts must develop affirmative-action programs. Firms must a develop plan to hire more
women and minorities if the firm has a smaller of proportion of women and minorities than in the available labor force.
These programs have been under legal and political attack.
Executive Orders
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Interventionist view The market has failed to eliminate
discrimination. Minorities and women have been
discriminated against in the acquisition of human capital.
Current legislation against discrimination does not correct for the effects of past discrimination. More than equal opportunity must be given
to close the current gap.
Controversy
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The empirical evidence on whether government policies have narrowed the gender and racial pay gaps is mixed. It is difficult to separate the effects of the
laws from other factors that are changing. The affirmative-action laws did appear to
have improved the employment opportunities for women and minorities in the 1970s but this progress ended in the 1980s.
Have Anti-discrimination Policies Worked?
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EndChapter 14
