Gender And Race

Gender in race in the labour market:

There are large differences in earnings across groups

Some differences can be explained by observable differences in productivities like schooling, or by
different labour supply
The international female male wage ratio is below 1 so the women have less wages relative to men

The discrimination coefficient:

Becker made uses the concept of taste discrimination

It costs wB to hire one black person, the discriminating employer will act as if it the costs are different

WB(1 + d)

The d is the discrimination coefficient

The racial prejudice causes the firms to perceive the costs of hiring blacks as higher than the market costs
It can be true for employers but also for employees
The employee that doesn’t want to work with a black co worker perceives his wage different

WB(1 - d)

The consumer can discriminate

The white consumer that doesn‘t want to buy from black sellers perceives the price different

PB(1 + d)

Employer Discrimination:

Blacks and whites are perfect substitutes

Q=f(EW + Eb)

Blacks and whites have the same VMPE

There is a wage gap between equally productive workers.
The different firms have different coefficients d
If blacks are cheaper, the non discriminating firm hires black workers only, they have d equal to the 0
The non discriminating firm will hire only blacks up to where wB is equal to the VMPE

VMPE = wB
The discriminating firm will behave as if the cost of black workers is different

WB(1 + d)

The firm hires black workers until the wB times 1 plus d is equal to the VMPE

VMPE = wB(1 + d)

If WB(1+d) is less than Ww then the discriminating firms will hire only blacks, otherwise it hires only white
If blacks and whites are perfect substitutes, firms have a segregated workforce.
The firms with a high d will hire only white workers up to Ww equal to the VMPE
The firms with low d will hire blacks up to WB(1+d) equal to the VMPE
Labour demand is distorted by discrimination
Profits and Discrimination
Dollars

pMAX

pW

Black Firms White Firms

0 dW Discrimination Coefficient

The discrimination does not pay.

The discrimination reduces profits in two ways.
The highly discriminating firms will hire labour at a higher wage.
The firms could have hired the same number of workers at a lower wage.
The firms are not hiring the amount that makes w equal to the VMP
The making wages equal to VMP they would have hired more workers because wB is lower
Black discriminating firms have lower profits because they equate VMPE to the WB(1+d) rather than WB

The black white wage ratio in the labour market:

The d is greater than 0 for everybody

There are infinite W workers and a limited and fixed number of B workers
If there is no wage gap between W and B workers then no firm hires B
If the ratio keeps decreasing, eventually the least discriminating firm will decide to hire B workers.
If the ratio decreases even further firms hire more B workers
There is a negatively sloped relation between the wage gap and the number of demanded B workers.
The supply is fixed.
The intersection will give the equilibrium gap.
There could be a fraction of non discriminating firms and still a positive gap. What matters is the marginal
firm, i.e. the last firm to hire black workers.
Employee discrimination:

White workers working next to black workers feel like they get paid WW(1-d)
The employers are colour blind.
The firm would never choose an integrated workplace because they need to pay W workers more
In equilibrium there is a completely segregated workforce without firm discrimination
If blacks were cheaper, employers would hire only black workers.
The firm equate wages to VMPE, there is no effect on profits.

The customer discrimination:

White customers do not like to buy from black worker and feel like they are paying P(1 + d)
The firm can react in two ways
It does not hire black workers
It can use black workers for jobs that do not require contact with customers.

The statistical discrimination:

The firm needs to hire a worker for a project

In order for the hire to be successful, the worker would have to commit to stay with the firm for 5 years
The worker A and worker B are considered. They are equally good.
It is difficult to infer the probability that they will stay for at least 5 years and there is no way to find out
Worker A comes from a demographic group that statistically quit their job more frequently.
The firm has the incentive to hire the worker B

There is information that cannot be revealed truthfully at the time of hiring

The non discriminating profit maximizing firm will use information on the average performance of a group
to make inference on a member performance.
The relative weight on the resume or interview with respect to the average of the group will depend on
how much information is not disclosed at the time of hiring.

If by looking at the resume and by asking questions firms are able to understand completely a worker
productivity, there is no statistical discrimination.
If it is not possible, then there is valuable information in the averages of the groups.
In the extreme, if interviews are not informative at all, firms would just look at groups to give wages.
It is a completely rational and profit-maximizing behaviour.

Measuring discrimination:

Measuring discrimination is difficult because it is illegal. Experimental studies can help.

Some researchers sent fake resumes.
Resumes had some variation of skills, experience and schooling as control.
Some names were white and others were black with equal qualifications
White names got 1 out of 10 recalls, while black names got 1 out of 15. 8
Years of experience would close the gap.

One possible definition of discrimination is given as the difference in mean wages

The different workers have different skills, better measure would compare wages of the equally skilled
In the OB model here is only one dimension of skill and it is schooling.
Black and white wages could be different because of difference in schooling or because of discrimination.
The OB decomposition would split the two.

There is difference from discrimination, the difference is from the different  in S

There is a difference from skills, the men are on average with higher S
The model is based on the assumption that the differences in skills across the two groups can be controlled

The wage gap is around 21% in 1995.

If the age, sex, education and region of residence is controlled, discrimination accounts for 13% of the gap.
If the researcher controls for occupation and industry, discrimination is only 10%.

Neal and Johnson use a test called Armed Forces Qualification Test (1980), it is similar to an IQ test.
In 1980 a random group of young Americans took the test (before they entered in the labour market).
The workers were then followed over time, the AFQT was a strong predictor of wages.
The black white ratio in wages is 0.8
After controlling for AFQT the ratio is 0.95
An average black worker earns on average 20% less but controlling for AFQT the difference is 5%.

The AFQT explains most of the gap.

The AFQT represents innate ability and the level of pre-market skills.
The gap in ability is there before actually going to the labour market

The schooling must be where the government should intervene to close the BW gap.
In 1967 the ratio was 0.65 for males and rose to 0.7 by the 1980. Now it is around 0.8.
The female gap rose from 0.75 to 0.96, 1967 to 1975. Now went down to 0.9
The wage gap has decreased
It can be explained by changes observed characteristics.
In 1940 an average 30y old W worker would have 9.9 years of schooling compared to 6 of a B worker.
In 1980, these numbers are 13.6 and 12.2.
Quality of schools is more similar e.g. the ratio teacher/pupils.
The gap in the rate of return to schooling went down.
The increase in the wage ratio can be explained by increase in black human capital

Labour force participation of blacks went down more than for whites.
If workers that drop off the labour force are on average low skilled workers, the average wage increases
It is one third of the trend could be explained by this.
Female male wage gap:

After controlling for age, education, region and occupation, the wage gap is still big and around 21-28%.
It is argued that a lot of this gap can be explained by different labour market histories.
In 1980 women worked 71% of their potential years of labour market experience. Men 93%.
The human capital framework can explain some of the wage gap
If women expected to work less, they will invest less in human capital accumulation
If women stay out of the market e.g. if they are raising family then skills do not grow and depreciate.

The occupation structure of women is very different from that of males.

Women’s occupations tend to have lower wages.
Before 1950 not all occupation were allowed to women
There are some occupations considered more proper for women

It could also be due to different labour market attachments.

Women might prefer occupations with less depreciation of human capital.
The two causes are difficult to distinguish.

The ratio was constant around 0.6 until 1980 while now it is around 0.8.
It looks like the gap was constant prior to 1980 but this is only apparent.
It was a period of rapid growth of female participation.
The new females that entered in the market were probably less skilled than the existing ones
The half of the reduction in the wage gap is explained by the increase in labour force participation
The females are now working a higher fraction of their life so they have more experience.