Taste_6 - Wage Discrimination Labor Market Discrimination:...

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1 Taste-Based Discrimination Ch12 pp. 407-413 Wage Discrimination Labor Market Discrimination: – The differential treatment of otherwise identical workers because of the demographic groups to which they belong. Wage Discrimination: – The offering of different wage levels to workers who are identical in productive characteristics, but different in the demographic groups to which they belong. Wage discrimination is a subset of labor market discrimination. Taste-Based Discrimination Employer Prejudice: – Employer is NOT profit-maximizing. – Employer is utility maximizing, gets utility from profits and hiring particular workers. Customer Prejudice: – Employer IS profit-maximizing. – Customer prejudice can lead to lower demand. Employee Prejudice: – Employer IS profit-maximizing. – Worker prejudice can lead to lower production. Employer Discrimination Employer’s choose M and F to maximize utility: U( π , M, F) – U is the utility of the employer. – M is the number of males hired. – F is the number of females hired. An employer with a distaste for females has the following utility function: U = π – d*F – Hiring one additional woman lowers the employer’s utility by $d. Employer Discrimination Assume perfect competition in input and output markets. U = π – d*F U = TR – TC – d*F U = P*Q – (w M *M + w F *F) – d*F – P is the price of the output good. – Q is the quantity of output. – w M is the market wage for males. – w F is the market wage for females. Employer Discrimination • The employer wants to maximize the following expression: U = P*Q – (w M *M + w F *F) – d*F • The employer chooses M and F, so there are two first-order conditions. – For males: U/ M = 0 – For females: U/ F = 0
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2 First-Order Conditions U = P*Q – (w M *M + w F *F) – d*F Male FOC: U/ M = P* Q/ M – w M = 0 P*MP M – w M = 0 MRP M = w M Female FOC: U/ F = P* Q/ F – w F – d = 0 P*MP F – w F – d = 0 MRP F = w F + d or w F = MRP F – d Employer Discrimination w M = MRP M and w F = MRP F – d If d > 0, then w F < MRP F .
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This note was uploaded on 10/22/2008 for the course ECON 470 taught by Professor Yeonsookim during the Fall '08 term at Maryland.

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Taste_6 - Wage Discrimination Labor Market Discrimination:...

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