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Labor Economics

by: Krystel Connelly

Labor Economics EC 450

Krystel Connelly
GPA 3.85


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This 9 page Class Notes was uploaded by Krystel Connelly on Tuesday September 8, 2015. The Class Notes belongs to EC 450 at University of Oregon taught by Staff in Fall. Since its upload, it has received 82 views. For similar materials see /class/187266/ec-450-university-of-oregon in Economcs at University of Oregon.


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Date Created: 09/08/15
Discrimination 1 Measuring Wage Discrimination A Raw wage differences CPS 1992 1 white men 33200 2 white women 19200 3 black men 21400 4 black women 17495 white men make more than minorities and women B Characteristic differences 1 white men employed full time 38177 2 white women employed full time 25244 in A men earn 73 more in B men only earn 51 more some of the differential is due to characteristic differences that market should quotrightfullyquot reward C Measuring premarket differences versus labormarket discrimination 1 wage differential between average man and women Aw WM WF 2 wage differential between quotcomparablyskilledquot men and women male earnings function wM ocM 55M female earnings function wF ocF 55F 3 wage differential using earnings functions Aw V7M39V7on Ml39 pM FM aF BFs F M 39 a1 pMs M BFEF 4 Oaxaca decomposition i distinguish between differences due to premarket differences in skills and labor market discrimination ii trick add and subtract pMs39F M m ms M M m M rewrite M aF m M ms M M M m WM m Ms s1 5 graphical explanation D Empirical evidence 1 blackwhite wage differential i 1940 to 1980 rose from 04 to 077 ii 198090 s relatively stable 2030 Oaxaca decomposition indicates 50 due to skill differential 2 malefemale wage differential i 19301980 relative stable between 5660 ii 198090 increase to 072 Oaxaca decomposition indicates 66 due to skill differential Point discrimination what ever the exact measure appears to be still with us employer discrimination model indicates discrimination should not persist so what other models can yield persistent discrimination E Deriving persistent discrimination 1 different source than employer i customer ii statistical discrimination 2 a non competitive market i occupational crowding 11 Customer Discrimination A Definition Customers do not like prefer being served by minorities and women whites and men ex professional sports ie basketball B Female vs male sales persons 1 assumption 1 men and women are equally productive MPWMPMMP 2 assumption 2 customers prefer to have male sales persons customers perceive that they pay more when helped by women PM PFld in equilibrium perceived female price must be equal to price paid when helped by a man C graph D malefemale wage differential WM wF VMPM VMPF WM WF PMlIP PFlP WM WF PM PFlIP WM 39 WF PF1d 39 PFMP WM wF PFdlP E Predictions 1 men earn more than comparablyskilled women 2 women have to have to be more productive ie have higher NIP to earn the same as a man 3 women have a lower return to human capital ie less incentive to invest 4 wage differential will persist as long as taste for discrimination persists this is not discrimination in the economic sense F Evidence 1 government agencies pay employees more who resemble the constituents of the department i department of agriculture vs EEOC ii Oregon vs Mississippi 2 baseballcard prices baseball cards for white players are worth more than baseball cards for black and Hispanic players who were comparably skilled III Statistical Discrimination A Educated Guess I Employers must guess about the potential productivity of applicants 2 Try to find information about applicant that is correlated with productivity GPA SAT recommendations 3 Information is generally not perfectly correlated with productivity B Example 1 PLC Elevator C Example 2 Insurance for Young Men moral l decisions are made on rationale utility or profit maximizing objectives and not based on prejudice 5 moral 2 In some cases productivity may be correlated with observable attributes of a group e g gender or race moral 3 People pay for the characteristics of their group D Arrow s Model of Statistical Discrimination l Assumptions 2 types of people qualified Q amp unqualified U firm has test that is a perfect predictor of ability test is costly 2 Employer will make you pay for test in a competitive market test could be stay for the first year and complete training 3 Suppose all people were qualified C MPi ri where I group male or female 4 But all workers are not qualified Workers must pay for persons who do not pass the test C MP rgtPltQgt Where PQi probability of passing test 5 Example Suppose P05 C MPi ri 05 or 2C MPi 39 i 6 Solve for wage ri MPi 39 CA 7 MaleFemale differences rM MPM 39 CP rF NIP 39 CA 8 Assumed men and women are equally productive lVlPM lVlPF result if PQMgtPQF the men will make more than women amp it is profit maximizing 9 Predictions Statistically discriminated group will make less be more qualified be underrepresented based on their population proportion the problem will become worse as you move up the job hierarchy ie glass ceiling if there are success tests discrimination will disappear on its own as groups become more similar statistically 10 Some conclusions problem with statistical discrimination is that is puts the stigma on the individual even though it is a group characteristic differences in probabilities may be due to premarket differences expectations for boys amp girls but it is unprofitable for the firm not to take differences into account women have been historically more likely to leave the job market and thus may be more costly to hire Statistical discrimination is selfperpetuating because it lowers the return to human capital if firm has a bad test in the sense it does not identify the productivity then it would lower its profits There is an incentive to develop a good test IV Is Affirmative Action an Effective Policy 3 Cases A Answer depends l the source 2 the market structure B Employer discrimination l competitive market discrimination is predicted to disappear without intervention however how long does it take 2 imperfect competition firms earn rents some of which may be spent on satisfying discriminatory preferences thus AA may be necessary moral of story affirmative action improves efficiency and at least in case 1 may no longer be necessary once discrimination is driven from market C Customer discrimination 1 AA does not address source of bias 2 increase employment of disadvanged groups by quotartificiallyquot increase costs of not hiring women or a minority for firm 3 hiring women and minorities may change preferences of customer over time however not clear it changes preferences for good 4 if preferences of customer do not change AA will need to be in place forever may not be an efficient means of changing preferences D Premarket discrimination 1 AA does not address the source of bias 2 increase employment of disadvanged groups by quotartificiallyquot raising the return to education of minorities and women 3 AA will become unnecessary if premarket differences go away may not be an efficient means of equalizing educational opportunities


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