Statistical_6 - Statistical Discrimination - Example...

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Statistical Discrimination Ch12 pp. 414-415 Statistical Discrimination - Example • Example of statistical discrimination from outside the labor market. – A necklace is stolen from a jewelry store and the alarm goes off. – A police officer across the street hears the alarm and witnesses a young man and an old lady run out of the jewelry store in opposite directions. – The police officer can only chase one suspect. Which suspect should he/she chase? Statistical Discrimination - Example A statistically discriminating police officer would chase the young man. The personal characteristics of the two suspects relating to theft are the same. – Both suspects fled the jewelry store shortly after the alarm rang. However, the characteristics of the groups to which the suspects belong are different. – Young men are more likely to commit crimes than old ladies. Note: Racial profiling is an example of statistical discrimination. Statistical Discrimination In the labor market, statistical discrimination occurs when group characteristics are factored into the wage offer. A key element of statistical discrimination is that firms do not know the productivity of workers. Firms observe personal characteristics which are correlated with productivity, but are not perfect predictors. Statistical Discrimination - Model Suppose a firm is looking for workers for a particular position. If the worker is qualified for the job, his or her productivity is high If the worker is unqualified, his or her productivity is low. Suppose that the firm decides that it will hire a worker if it is at least 50% sure that that worker is qualified. Statistical Discrimination - Model In order to find out more about whether a candidate is qualified, the firm gives a test. Qualified candidates are more likely to score high on the test than unqualified candidates, but some unqualified candidates will score higher than some qualified candidates. The firm will use the test score as a predictor of
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Statistical_6 - Statistical Discrimination - Example...

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