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Labour Economics > Economics of Discrimination > Flashcards

Economics of Discrimination Flashcards

1
Q

Wages may differ by other factors that may not be associated with productivity differences. What are these factors

A
  • sex
    race/ethnicity
  • age
  • sexual orientation
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2
Q

When we discuss discrimination. What are labour market factors

A
  • sex
  • race/ethnicity
  • age
  • sexual orientation
  • they do not affect productivity, but may affect wages
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3
Q

When we discuss discrimination. What are non-market factors?

A
  • education, location etc.
  • they may be related to market factors and do affect wages
    e.g., lower-quality schools for Black people
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4
Q

How do you solve market factors

A

Policies that make labour market discrimination (sex, race/ethnicity, age, sexual orientation) more costly

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5
Q

How do you solve non-market factors?

A

Adopt policies to correct non-market discrimination or the causes for the difference in non-market factors (education, location, etc.

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6
Q

What is the equation for Employer Discrimination?

A

MP’ = MP - d
MP - true marginal product of workers (female or male)
MP’ - perceived marginal product for women
d - Euro value of the marginal disutility to the employer of hiring a female worker instead of a male worker. Measures the employer’s taste of discrimination.
Assume men & women are equally productive.
Discriminatory employers act as if men are more productive than women by including the “cost” to themselves of employing women.
Because wage equals marginal product, the employer will act as if the wage of a female worker is: Wf = W(1+d).

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7
Q

What is d called in the discrimination equation?

A

d is called the discrimination coefficient.
- what the employer would pay to avoid hiring a female worker
- discrimination is something that must be purchased, and the price is d.

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8
Q

Assuming initially that all employers are identical (they all value discrimination - men over women)

A

Female workers receive lower wages because employers discount women’s productivity.
Wm = MP while Wf = MP - d (benefit to employers - cost)
Wm = Wf + d > Wf
d = gender wage gap
- women are hurt by discrimination
- the discrimination will persist
- in equilibrium employers will be indifferent between hiring female workers and paying the Wf and hiring male workers and paying them Wm

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9
Q

What happens in markets where employers are identical and have the same d:

A
  • Women are hurt by discrimination
  • The discrimination will persist
  • In equilibrium employers will be indifferent between hiring female workers and paying them Wf and hiring male workers and paying them Wm
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10
Q

Now suppose that employers differ in the size of d

A
  • d is distributed across employers. Some have high d; for some, d = 0
  • Equilibrium value of Wm and Wf in the market - and, thus, d - will be a function of the distribution of d among employers and the number of women seeking a job
    In the end, there will be an equilibrium value of d and therefore an equilibrium value of Wm and Wf (Wm = Wf + de)
  • Call this equilibrium value de
  • If de is positive, then Wm>Wf
  • If there are enough employers with d=0:
  • Wm = Wf
    de = 0 - gender wage gap
  • There is no market discrimination
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11
Q

How does an individual employer behave?

A

di is the discriminatory coefficient for an individual employers.
- If di<de then the employer will only hire women because Wf(1+di)<Wm (they are profit maximizing, thus they choose the lower: Wf (1 + di).
- If di>de then the employer will only hire men because Wf(1+di)>Wm (they are profit maximizing, thus they choose the lower: Wm).
- If di = de then the employer will hire either men or women.
If de = 0, proportion of men and women hired would be equal.
They’re going to chose what is cheaper.
If it’s cheaper to hire men with d factored in for wage for women, they hire men.

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12
Q

What does employer discrimination theory predict?

A

Theory predicts most employers will employ only men or only women; very few firms where men & women work together. - same wages but still see segregation.
Is this true?
- There is a fair amount of firm-level segregation by sex
- May be other reasons why men and women tend to work in different firms
- Much less employer segregation by race

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13
Q

Key take away from employer discrimination?

A
  • Firms that employ women will be more profitable - they are using the right amount of workers relative to skills
  • Profit of the firm will vary with the owner’s discrimination coefficient
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14
Q

With employer discrimination, how in theory should discrimination be removed from the market?

A

-> because firms employing female workers are more profitable, they should grow faster and take over the more discriminatory firms
->grow faster and put the other firms out of business
-> buy out the other firms
-> In the end the least discriminatory firms should be the only firms that survive.
Is this what we see?
-> Firms with more women earn higher profits
-> Little differential in firm growth or failure

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15
Q

What do we assume for employee discrimination?

A
  • Assume that men do not like working with women
  • Assume that men and women are perfect substitutes in production
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16
Q

If a male worker works with a female worker, he requires a wage premium:
Wm = Wm + d, if he works with women Wm = Wm
Will an employer ever hire both men and women?

A

No - firms want to maximise profits paying men a higher wage to work with women does not help their profits.
with employee discrimination we should observe perfectly segregated firms - male firms and female firms

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17
Q

What is the observed wage differential in the market with employee discrimination?

A

The observed wage differential in the market will be 0
Wm = Wf

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18
Q

Employee discrimination between complementary factors - what are we assuming?

A

production workers and supervisors are complementary factors in production
- Assume men don’t want to be supervised by a women
-> male production workers must get paid more money if they are supervised by female supervisors
- Assume women don’t mind who they are supervised by or who they supervise i.e. male production workers
It is a super simple workforce:
consisting of just production workers + supervisor workers

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19
Q

What will the employer do in the case where men don’t want to be supervised by women?

A
  • Not employee female supervisors supervising male production workers
  • female workers will only supervise female workers
  • if there are fewer women in the market than men, this will limit the opportunity for female workers
    In equilibrium female and male supervisors and female and male workers will be paid the same wage
  • this reduces the number of supervisor positions compared to if there was no discrimination
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20
Q

What happens in the production and supervisor workers where women are not given supervisor roles as men do not want to be supervised by them?

A
  • there is unequal average pay not unequal wages
    average wage of women < average wage of men because fewer women will supervise
  • even though men and women are paid the same when you’re averaging across two groups and the share (women in supervisor roles compared to men) is different in both groups there is a wage gap
  • this could account for why women are more likely to work in lower paying, lower skill occupations
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21
Q

What are the three sources of discrimination

A
  • employee
  • employer
  • customer/consumer
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22
Q

What do we assume in customer discrimination?

A

Assume male customers do not like to purchase goods or services from female business owners or female workers
Assume males have lower utility when they buy a good from a female business owner then when they buy the good from a male business owner
-> More likely in retail and service firms

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23
Q

What is the equation for how men behave in consumer discrimination?

A

Pf = Pm (1 + d)
where Pf is the price of the good from a female owned business,
Pm is the price of the good from a male owned business and d is the discrimination coefficient

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24
Q

What is the result of consumer discrimination?

A

Fewer women will own businesses

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25
Q

What can customer discrimination lead to?

A

Women and men having different jobs
- less likely to have female workers work with customers-> they could be working in the back on accounts/ in the stock room

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26
Q

What does taste discrimination show?

A

How wage differentials can arise between equally productive men and women or between white and minority workers

27
Q
A
28
Q

When can wage differentials arise?

A

when employers are not discriminatory if productivity or skill is related to membership in a group
- now were assuming indifferent productivity related to a statistic e.g., Age
- we are assuming their is no personal prejudice like with employer, employee and consumer discrimination
- if firms could observe productivity we would not see this
- instead they have some sense based on gender
Statistical Discrimination - would not occur if people were equally productive
if employers believe that productivity varies by sex, they will use sex as a signal about an individual person’s productivity

29
Q

Based on expectation who do firms generally hire?

A
  • Employer hires the male based on expectation about how long he will stay at the firm
  • Not the only place in the market
30
Q

Example of statistical discrimination

A
  • Learner drivers pay higher insurance because on average new drivers are more likely to crash
    The US allows statistical discrimination on things related to gender, age, sexual orientation.
  • US life insurance premiums lower for women because they tend to live longer
  • US auto insurance higher for teen age boys because they get into more accidents
31
Q

Profit of the firm will vary with what?

A

The discrimination coefficient

32
Q

With employee discrimination what should we observe?

A

Perfectly segregated firms - male firms and female firms

33
Q

What is de

A

equilibrium of discriminatory coefficient for different employers

34
Q

What is di

A

discriminatory coefficient for an individual employer

35
Q

If di < de who will the employer employ?
(di - discriminatory coefficient for an individual employer < de - equilibrium of discriminatory coefficient for employers in labour market)

A

Only women because Wf (1 + di) < Wm

36
Q

If di > de, who will the employer employ? (di - discriminatory coefficient for an individual employer > de - equilibrium of discriminatory coefficient for employers in labour market)

A

Only men because Wf(1 + di) > Wm

37
Q

What is Statistical Discrimination?

A

Assumption that workers differ in their productivity for some reason
- if employers believe that productivity varies by sex, they will use sex as a signal about an individual person’s productivity

38
Q

T is a noisy measure of a worker’s productivity

A

tells us something about productivity but is not a perfect predictor of productivity
T* in some ways, is a better predictor

39
Q

What is T*?

A

Average test score of an applicant’s group
T* in some ways is a better predictor than t - an individual test score

40
Q

What is the formula for the case where the employer may want to use some combination of T and T* to determine an individual worker’s wage

A

W = (1-α)T* + αT

41
Q

What does α = 0 mean?

A

the employer only uses worker’s score to determine the wage
- test score is a perfect predictor of productivity

41
Q

What does α=1 mean?

A

the employer only uses worker’s score to determine the wage
- Test score is a perfect predictor of productivity

41
Q

What does α measure?

A

α measures the relationship between the test score and productivity

41
Q

What is the intercept in the equation:
W = (1 - α)T* + αT

A

(1 - α)T* = intercept

41
Q

What is the slope in the equation:
W = (1 - α)T* + αT

A

α = slope

42
Q

Who gets paid lower wages in the situation where TF < TM

A

For any test score T1, women receive a lower wage
- both lines have the same slope, the red line has a lower intercept than the blue line

43
Q

Who gets paid lower wages in the situation where TF = TM and men have higher slope (but same T*)

A
  • High productivity (high T*): men paid more
  • Low productivity (low T*) - women paid more
  • Women and men are on average just as productive, but there is smaller difference in the productivity of men then the productivity of women
  • more high-productivity women but also more low-productivity women
  • In this case the score on the test is a less reliable predictor of productivity for women
  • Employer relies more on the mean productivity for women when determining women’s wages - employer thinks a high test score for a woman overstates their ability
44
Q

What happens when an employer treats an individual woman more like the average woman

A
  • High-skilled women will be paid less than high-skilled men
  • low-skilled women will be paid more than low-skilled men
    Here, statistical discrimination benefits low-skilled women but hurts high-skilled women.
  • if she has a high test score, employer assume it is “too” high
  • if she has a low score, employer assumes it is “too” low
45
Q

Should employers use group averages in determining worker wages?

A

using more information helps employers allocate workers more efficiently
- put workers into the appropriate occupation
- provide training to the workers most likely to provide a return on that training

46
Q

In the case where men have a higher slope (but same T*), does statistical discrimination benefit low-skilled or high-skilled women? and does it hurt low-skilled or high-skilled women?

A

Statistical discrimination benefits low-skilled women but hurts high-skilled women

47
Q

How can employers using group averages to determine wages affect individual workers?

A
  • As women change their behaviour previous averages become obsolete
  • May take longer for employers to adjust to new behaviour
  • May “trap” women into old occupations/jobs
  • creates gender gap in earnings
48
Q

Should employers use group averages in determining worker wages?

A

Using more information helps employers allocate workers more efficiently
- put workers into the appropriate occupation
- provide training to the workers most likely to provide a return on that training
- courts have decided that employers cannot use certain characteristics when making hiring and promotion decision.
-Age, race, sex
- However, if this information is useful employers will find other characteristics that are correlated with, ae, race, or sex, and base decisions on these other traits.

49
Q

What accounts for observed wage differential - where is pay gap the largest?

A

pay gap largest for firms/industries that pay a large premium for workers willing to work ling hours or hours in the office and who do not take extended leave from the job
- corporate, financial and legal firms
- can view this as a compensating wage differential
- women are unwilling to work these hours even with higher pay, and they are more likely to take leave

50
Q

What accounts for observed wage differential? What types of firms/industries is pay gap lowest?

A

Pay gap is smallest in firms/industries where workers can work more regular shifts and more flexible hours
- technology, science, health, UCD
- According to Goldin, equal pay will only occur when firms stop rewarding workers for working long hours and particular hours

51
Q

What are determinant of the Female-Male Wage Gap?

A
  • women tend to choose majors that result in lower pay and make choices when they have children that result in lower earnings
  • women are less likely to major in STEM disciplines despite evidence that they are just as good, if not better, in science and mathematics in high school
  • traditions and norms seem to lead women to make different choices
52
Q

What is taste discrimination?

A

prejudice employers act as if the cost of hiring a particular worker is higher than the worker’s wage

53
Q

If male and female workers are prefect substitutes in production, what does employer discrimination lead to?

A

the segregation of men and women workers in the labour market and unequal pay

54
Q

Does a firm’s discriminatory behaviour increase/reduce profits?

A

reduces profits

55
Q

Does employee discrimination create a wage differential between male and female workers?

A

No it doesn’t

56
Q

What does customer discrimination depend on?

A

whether it is stronger than discrimination within the firm

57
Q

What does statistical discrimination lead to?

A

Differential treatment of equally skilled workers belong to different groups
- when firms do not complete information on a particular worker’s productivity, they might use aggregate characteristics of the group as an indicator of the worker’s productivity.
Wage differential by race, sex, etc. can arise even if employers are not prejudiced

58
Q

What is a simple way to measure discrimination?

A

measure wage differentials (controlling for all the variables that affect MP)
- However, these observed wage differentials do not allow us to see how much of the wage differential is due to discrimination

59
Q

Achieving equality for women involves what?

A

flexibility of employment in high wage industries and addressing norms

Labour Economics (10 decks)

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