Labour Market Discrimination: Mcgraw-Hill/Irwin Labor Economics, 5 Edition
Labour Market Discrimination: Mcgraw-Hill/Irwin Labor Economics, 5 Edition
Labour Market Discrimination: Mcgraw-Hill/Irwin Labor Economics, 5 Edition
Chapter 9
Labour Market
Discrimination
McGraw-Hill/Irwin
Labor Economics, 5th edition Copyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
10 - 2
Introduction
• Labour
abou Market
a et Discrimination
sc at o iss another
a ot e possible
poss b e reason
easo that
t at
might explain wage dispersion.
• Discrimination occurs when participants in the marketplace
(e.g. employers, employees, customers) take into account such
factors as race and sex when making economic exchanges.
1
10/7/2009
10 - 3
For additional NZ data (some were shown for earlier topics) see, for
example:
- Department of Labour (2009), Labour Market Statistics 2008, Wellington.
- Statistics New Zealand (2003), Human Capital Statistics, Wellington.
10 - 4
- Assume the employer is prejudiced against black workers and this prejudice
enters his/her utility function as disutility. Even though it costs wB dollars to
hire one person-hour of black labour, the employer will act as if it costs
wB(1+d) dollars, where d is positive and called the discrimination
coefficient.
- Racial prejudice causes employers to blindly perceive the costs of hiring
blacks as higher than their true costs.
2
10/7/2009
10 - 5
B k ’ model
Becker’s d l can be
b applied
li d in
i many different
diff circumstances.
i
- The discrimination coefficient ‘monetises’ prejudice, regardless of
whether the source of the prejudice is the employer (employer
discrimination), the employee (employee discrimination), or the
customer (customer discrimination).
- In a sense, the labour market has to generate a compensating differential
to compensate prejudiced persons for their utility loss or gain!
10 - 6
3
10/7/2009
10 - 7
If the
h market-determined
k d i d
black wage is less than the
white wage, a firm that does
not discriminate will hire
only blacks. It hires black
wB workers up to the point
where the black wage
equals the value of marginal
VMPE
product of labour, or E*B.
EB Employment
10 - 8
4
10/7/2009
10 - 9
wW
wB(1+d1)
wB(1+d0)
wB
VMPE VMPE
EW E l
Employment
t E0B E* Employment
10 - 10
5
10/7/2009
10 - 11
10 - 12
6
10/7/2009
10 - 13
Black-White
Wage Ratio
If the black-white wage ratio is very high,
no firm in the labour market will want to
S
hire blacks. As the black-white wage ratio
falls, more and more firms are
compensated for their disutility and the
(wB/wW)′ demand for black workers rises. The
equilibrium black-white wage ratio is
1
given by the intersection of supply and
R D′
demand, and equals (wB/wW)*. If some
firms prefer to hire blacks, they would be
willing to hire blacks even if the black-
black
white wage ratio exceeds 1, shifting the
(wB/wW)* demand curve up to D′. If the supply of
D blacks is sufficiently small, it is then
0 N Black
possible for the black-white wage ratio to
Employment exceed 1. Minority workers may benefit
from ‘enclave economies’.
10 - 14
7
10/7/2009
10 - 15
10 - 16
8
10/7/2009
10 - 17
10 - 18
w = α T + (1 - α ) Ť (9-4)
- α measures the correlation between the individual test score and true
productivity. Extreme cases: α = 1 or α = 0.
- Figure 9-5.
9
10/7/2009
10 - 19
White
Black
The worker’s wage depends not only on his own test score, but also on the mean test score of workers
in his racial group. (a) If black workers, on average, score lower than white workers, a white worker
who gets T* points earns more than a black worker with the same score. (b) If both groups have the
same mean test score but the test is a better predictor of productivity for white workers, high-scoring
whites earn more than high-scoring blacks, and low-scoring whites earn less than low-scoring blacks.
10 - 20
• Figure 9-5b:
- The black worker’s wage is mostly set on the basis of the group
average, the white worker’s wage is mostly set on the basis of
his/her own test score.
- Blacks that scored low on their individual test actually benefit
from statistical discrimination (relative to high scoring blacks)!
10
10/7/2009
10 - 21
10 - 22
11
10/7/2009
10 - 23
Men s Earnings
Men’s The average woman has s-F
Function
years of schooling and earns
w-F dollars. The average man
w −M
w*F has s-M years of schooling and
earns w-M dollars. Part of the
w*F
Women’s Earnings wage differential arises
αM
Function because men have more
w −F schooling than women. If the
αF average woman was paid as if
she were a man, she would
earn w*F dollars. A measure of
s− F s− M Schooling
discrimination is then given by
(w*F − w-F).
10 - 24
• Does the
h OOaxaca Decomposition
i i really
ll measure
discrimination?
- Depends on whether all dimensions of the skill differences between
groups have been measured and controlled for.
- That is unlikely (e.g. quality of education, motivation, drive?). The
results of the decomposition can therefore always be criticized.
• This is an easy argument for people who do not think that there is
discrimination!
- But why do quality of education, motivation & drive differ? If they
differ due to discrimination (not by the employer, but by ‘society’),
they should NOT be controlled for in the decomposition!
12
10/7/2009
10 - 25
10 - 26
13
10/7/2009
10 - 27
10 - 28
14
10/7/2009
10 - 29
Household Production
10 - 30
Household Production
15
10/7/2009
10 - 31
200
150
10 - 32
16
10/7/2009
10 - 33
P
U P
U
P
U
Household Household Household
Goods ($) Goods ($) Goods ($)
10 - 34
• The Household will choose the point that gets it on the highest
indifference curve. Three possible solutions:
- (b) Jack specializes in the labour market and Jill divides her time
between the labour market and the household.
- (c) Jack specializes in the labour market and Jill specializes in the
household sector.
17
10/7/2009
10 - 35
18