Chapter 9. Discrimination

1. Chapter 9. Discrimination • Definition • Types of Evidence • Theories • Combating

2. An economist’s definition • two people with same • productivity • preferences • but different group (race, sex, age) • receive different outcomes in labor market • wages, hiring, promotion

3. NOT the same as prejudice • prejudice is a cause of discrimination • but discrimination can happen without it

4. sex vs. race discrimination • w/ race there is segregation & a total unwillingness to associate with that group • but men and women share households

5. Types of Evidence • Direct testimony • individual experiences • with a large number of victims, it shows a pattern • with a small number, it hinges on credibility • issue of unreported cases

6. Auditing • matched pairs of testers (identical except for sex or race), sent for interviews • may find discrimination in hiring, entry wages, but not in raises or promotion

7. Statistical evidence • wage regressions • control for worker differences (education, experience, etc.) • estimate unexplained wage differences by sex for firm, industry

8. large sample shows pattern • but measurement problems, and sample selection bias (does not include women not hired)

9. Theories of Discrimination • With competitive, free markets with rational firms, consumers • no discrimination should exist

10. why? • firms that discrimination will be driven out of business by firms that do not • consumer that discriminate may end up paying more • employees that discriminate may end up with lower wages

11. So, if discrimination exists then • firms, consumers, employees have a preference for it • markets are not competitive • imperfect information about prospective workers

12. Any theory of discrimination should explain • lower wages for women • occupational segregation • long run persistence

13. A Preference for Discrimination • Gary Becker, PhD dissertation • Nobel Prize winner (1992) • Discrimination can occur due to preferences of • employer • employees • customers

14. Employer Discrimination • employer wants to • maximize profits AND • engage in discrimination due to his/her prejudice • willing to accept lower profits in order to discriminate

15. what happens? • pays “desired” employees more to attract them and avoid hiring the undesired group • lower wages for undesired group • segregation between employers who discriminate and those who do not

16. long run? • non discriminating employers have lower costs, drive discriminating employers out of business • UNLESS there is not a lot of competition

17. Employee Discrimination • employees dislike working with a certain group so • demand higher wages to work in an integrated work site OR • less productive in an integrated work site

18. Note: employers responding to employee prejudice, not their own • trying to avoid paying higher wages • wanting to maximize productivity

19. employee discrimination would cause segregation • lower wages for women? • if they appear to be less productive • (but really the prejudiced workers are less productive)

20. long run? • this would persist as employee attitudes change slowly over time • and if attitudes are widespread

21. Customer Discrimination • customers willing to pay higher price to be serviced by desired group • so firms avoid hiring undesired group (to get a higher price) OR • firms pay undesired workers less to make up for price cut

22. segregation • women waiters in cheaper restaurants, • male waiters in fancy restaurants • High % male representation in car sales, repair • lower wages? • if undesired worker paid less • or if crowding (ch. 6)

23. long run? • yes, since attitudes change slowly

24. Models w/out prejudice • monopsony • rent-seeking • imperfect information

25. Monopsony Model • = one buyer (of labor) • employers band together • set below market wages in jobs with high % female • motivated by desire to min. costs, max. profits • implies wage gap • Lemons v. City of Denver

26. problems • monopsonies are local, not national • with increasing labor mobility, move to area with better pay • but women ARE less mobile • women’s labor supply is more elastic w.r.t. wages • more likely to not work if wage too low

27. Rent-seeking models • one group bands together to improve their well-being at the expense of others • desired group preserves best jobs for themselves • motivated by greed, not prejudice • but could be combined w/ prejudice

28. more likely a model for racial discrimination • because men and women share households, • but races are more segregated in all areas

29. Imperfect Information Model • a.k.a. statistical discrimination • employers have imperfect information on potential hires • do not know for certain their individual productivity

30. so increase their odds of a “good” hire by • taking average characteristics of group (sex, race, etc.) • applying it to individual

31. example • women have higher turnover rates on average • it is expensive to train new workers • employers end up preferring men, who are less likely to quit, ON AVERAGE

32. who is hurt? • women who are highly attached to the labor force • who benefits? • men who are not

33. Differences in average characteristics • may be perceived or actual • some actual differences • women have more absences (especially married women) • men more likely to have substance abuse problem

34. why isn’t this prejudice? • discrimination here is not due to dislike of certain group • but desire to max. profits given the uncertainty about hiring • if employer had perfect info, then he/she would not do this

35. the law • in about 19 states, illegal to ask about marital, family status in an interview • and may be prohibited under federal law too • Technically, it is illegal for an interviewer to ask anything personal that is not directly job-related.

36. Indirect vs. direct discrimination • direct • discriminating among individuals with same skills, preferences • indirect • certain groups have fewer skills because of discrimination

37. Combating Discrimination • Government regulation • Private sector alternatives

38. Government Regulation • laws against discrimination • pros: • improve efficiency, productivty • improve equity • works more quickly than changing societal attitudes

39. cons: • compliance costs • costs of litigation

40. Federal Laws • Equal Pay Act of 1963 • The Civil Rights Act of 1964 • The ERA (not passed)

41. The Equal Pay Act of 1963 • prohibits wage discrimination for women and men performing work for same employer of similar • skill • effort • responsibility • working conditions

42. restrictive • how to define “similar”? • covers almost all employers

43. exceptions if wages differ by sex due to • seniority system • merit pay system • any factor other than sex

44. The Civil Rights Act of 1964 • created EEOC to enforce the law • prohibits discrimination on basis of race, sex, color, religion, national origin • Title VII – employment • Title IX -- education

45. Title VII • hiring/firing/layoff • compensation/benefits • job title/promotions/tranfers • ads/recruitment • training/facilities • disability leave • all employers with > 15 workers

46. exceptions • if sex, religion is legitimate job requirement • “BFOQ” • race is not considered a BFOQ • EEOC vs. Hooters (1995)

47. sexual harassment • illegal under title VII • “quid pro quo” • sex-for-job, raise, promotion • hostile work environment • behavior of coworkers make interferes with job

48. back to interview questions • questions about marital, family status • may violate title VII if used against women and not against men

49. pregnancy based discrimination • pregnancy, childbirth and related disabilities must be treated same as other disabilities/illnesses in employer policy

50. Title IX • education programs receiving federal aid • implications for sports programs