CH. 12: GENDER, RACE, AND ETHNICITY IN THE LABOR MARKET. Chapter objectives: Document levels and trends in earnings differentials by gender and race. Provide economic theories of wage discrimination. Review evidence on whether earnings differentials are due to discrimination.
Employer behaves as if minority worker’s true MRP is MRP-d where d is measure of employer prejudice against minority.
Firm pays for discrimination in the form of lower profits (CBGE).
Each worker’s productivity is measured with some error:
true productivity = measured productivity + error
If expected value of error depends on demographic group, can use group status to improve estimate of productivity.
As variance of error within a group rises, the value of discriminating on basis of group status is reduced.
Profitable to firm and may persist.
where EXP = (x1-x2)*b1
UNEXP = (a1-a2) + (b1-b2)*x1