Unformatted text preview: Econ 101 Introduction to Microeconomics
Professor Richard V. Burkhauser 19 Earnings and Discrimination Key Concepts compensating differentials, p. 414 human capital, p. 418 efficiency wages, p. 422 discrimination, p. 422 Econ 101 Professor Burkhauser Differences Differences in Earnings in the United States Today The typical physician earns about $200,000 a year. The typical police officer earns about $50,000 a year. The typical farm worker earns about $20,000 a year. Econ 101 Professor Burkhauser Differences What causes earnings to vary so much? Wages are governed by labor supply and labor demand. Labor demand reflects the marginal productivity of labor. In equilibrium, each worker is paid the value of his or her marginal contribution to the economy's production of goods and services. Econ 101 Professor Burkhauser Human Capital Theory Wages = Innate Ability + r (Education) Ted Schultz and Gary Becker won Nobel Prizes based on this conceptualization Econ 101 Professor Burkhauser Wage Differentials due to Differences in Returns to Human Capital wU wS SS SU rH
DU LU Unskilled Labor Market Skilled Labor Market DS LS Table 1: Average Annual Earnings by Educational Attainment Table 2: Median Annual Earnings by Race and Sex WHAT ACCOUNTS FOR DIFFERENCES IN AVERAGE WAGES BETWEEN RACES? Fundamental differences by race? Biological Arguments Fundamental differences in the way people are treated by race? Social environment Market environment Econ 101 Professor Burkhauser We hold these truths to be self-evident; that all men are created equal; that they endowed by their creator with certain inalienable rights; that among these are life, liberty, and the pursuit of happiness. Declaration of Independence, 1776 13th Amendment to the Constitution (1865) end of slavery 14th Amendment to the Constitution (1868) protection of the right of all to life, liberty and the pursuit of happiness 15th Amendment to the Constitution (1870) right to vote Civil Rights Act of 1965 (Equal Employment Opportunity Commission, Federal Regulation to measure discrimination)
Econ 101 Professor Burkhauser THE ECONOMICS OF DISCRIMINATION Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics. Econ 101 Professor Burkhauser Measuring Labor Market Discrimination Wages
Difference due to education Whites wW wBW wB
Blacks Difference due to discrimination EB EW Education Measuring Labor Market Discrimination w W = 0 + 1 E W w WB = 0 + 1 E B w B = 0 + 1 E B w W - w B = Wage Gap
Econ 101 Professor Burkhauser 19.1: Market Discrimination Market discrimination is evident when
a) wages of individuals differ on the basis of some b) c) d) e) recognizable attribute that is unrelated to productivity wage rates differ for similar jobs consumers prefer to shop at some stores, not at others. the average wage of women differs from the average wage of men. the average wage of high skilled workers differs from the average wage of low skilled workers.
Econ 101 Professor Burkhauser ...
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