Discrimination - Labour Market Discrimination Laura...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Labour Market Discrimination Laura Salisbury ECON 3240: Labour Economics Fall 2016 Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 1 / 52
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Discrimination in the Labour Market Why do different workers earn different wages? Economic theory predicts that the wage a firm is willing to pay a worker is based on the worker’s productivity. Explanations for wage differences we have looked at so far: Differences in workers’ characteristis Age, education, training, “ability” But sometimes workers who are equally productive earn different wages. May be due to discrimination in the labour market. Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 2 / 52
Image of page 2
Discrimination in the Labour Market What is discrimination? Different wages to equally productive or qualified workers because of gender, race, ethnicity, etc. Illustration: A man with a BA earns more than a woman with a high school diploma. This is not discrimination. A man with a BA earns more than a woman with a BA. This may be discrimination. Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 3 / 52
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Economic Theories of Discrimination Areas of focus: Why does labour market discrimination happen? (Theoretical) How much labour market discrimination is there? (Empirical) Theoretical Models of Discrimination: Demand side Supply side Non-competitive Occupational choice Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 4 / 52
Image of page 4
Employer Discrimination “Taste-based” discrimination Gary Becker (1957), Kenneth Arrow (1973) Demand theory of discrimination Employers dislike hiring members of a certain group In order to hire members of this group, employers must be “compensated” Pay workers from this group below their marginal product. Causes members of this group to earn lower wages in equilibrium. Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 5 / 52
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Employer Discrimination Two “groups”: A and B Can be gender, race, nationality... Workers from both groups have the same marginal revenue product ( MRP N ) Firms can pay workers from groups A and B different wages ( W A , W B ) Marginal cost of hiring a worker from group A : MC A = W A Marginal cost of hiring a worker from group B : MC B = W B + d d is a “discrimination parameter” Firms dislike hiring workers from group B – more costly “Cost” in utility terms, not monetary terms Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 6 / 52
Image of page 6
Employer Discrimination How do firms choose how many A and B workers to hire? Set MRP N = MC N for both groups Group A: MRP N = W A Group B: MRP N = W B + d Firm’s labour demand lower for group B. If all firms are the same, this means that market labour demand is also lower for group B. wages for group B. Laura Salisbury (ECON 3240) Labour Market Discrimination Fall 2016 7 / 52
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Employer Discrimination Illustration: For both groups, MRP N = 10 - 2 N Discrimination parameter: d = 2 Labour demand for group A workers: W A = 10 - 2 N D A N D A = 5 - 1 2 W A Labour demand for group B workers: W B + 2 = 10 - 2 N D B N D B = 4 - 1 2 W B At any wage, firms demand less labour from group B than they demand from group A.
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern