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.
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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