Lecture 10 Discrimination PDF_1

Lecture 10 Discrimination PDF_1 - Chapter 10:...

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1 Chapter 10: Discrimination Econ 339 Labor Economics Winter Quarter 2007 Sections: all
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2 Wage Differentials So far we discussed wage differentials arising from Compensating Differentials Skill Differentials Now: Wage differentials due to discrimination
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3 What is Discrimination? Discrimination exists if Workers with identical productive characteristics are treated differently because they belong to a certain group Gender Discrimination Racial Discrimination Age Discrimination Discrimination based on Looks
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4 Labor Market Discrimination Wage differentials exists because People differ in skills when they ENTER the labor market The skills people possess are rewarded differently after entering the labor market => Labor Market Discrimination
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5 International Differences in Gender Gap
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6 Race and Gender Differences (2001)
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7 Race and Gender Differences
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8 Occupational Differences
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9 Industry Differences
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10
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12 Theories of Labor Market Discrimination Taste-based Discrimination Employer Discrimination Employee Discrimination Customer Discrimination Statistical Discrimination
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13 Taste-based Theories: The Discrimination Coefficient If discrimination is taste-based the discriminating unit receives disutility from interacting with a certain group Employers don’t like to employ that group Employee don’t like to work with that group Customers don’t like to buy from that group This disutility is summarized by the discrimination coefficient (d)
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14 Employer Discrimination Consider 2 groups: A and B Wages: w A and w B Discrimination Coefficient: d B is discriminated against Employer acts as if he has to pay (1+d)w B to group B A and B have same skills and are perfect substitutes in production
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15 Employer Discrimination Q=f(E A +E B ), production depends only on the total number of workers hired Without Discrimination… In the absence of discrimination employers hire the group with a lower wage initially Wages between the groups equalize What happens with discrimination?
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16 Employer Discrimination Employer perceives group B’s wage as (1+d)w B and compares this perceived wage to w A If w A <(1+d)w B Employer hires only group A If w A >(1+d)w B Employer hires only group B Employer discrimination leads to segregated firms
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17 Discrimination and Profits Non-discriminating firm hires workers until VMP E =wage A firm with d>0 will not make the highest possible profit Firms that discriminate could pay less and employ more people Discrimination doesn’t pay Discriminatory firms should be competed out of the market
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18 Profit Discrimination Coefficient d W π MAX π W White Firms Black Firms Discrimination and Profits Maximum Profit when d=0 (No Discrimination) As d increases profits decrease When (1+d) exceeds the wage differential firms hire only group A Inverse relationship between profits and discrimination
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19 Black-White
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Lecture 10 Discrimination PDF_1 - Chapter 10:...

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