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labor sol Chap009

# labor sol Chap009 - Chapter 09 Labor Market Discrimination...

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Chapter 09 - Labor Market Discrimination CHAPTER 9 9-1. Feeling that local firms follow discriminatory hiring practices, a non-profit firm conducts the following experiment. It has 200 white individuals and 200 black individuals, all of whom are similar in age, experience, and education, apply for local retail jobs. Each individual applies to two jobs, one in a predominantly black part of town and one in a predominantly white part of town. Of the white applicants, 120 are offered jobs in the white part of town while only 80 are offered jobs in the black part of town. Meanwhile, 90 of the black applicants are offered jobs in the black part of town while only 50 are offered jobs in the white part of town. Using a difference-in-differences estimator, do you find evidence of discriminatory hiring practices? If there is discrimination, is it most likely employer-based, employee-based, customer-based, or statistical? The data can be used to create the following table. Chance of Receiving a Job Offer in the: Type of Worker Black part of town White part of town Difference Diff-in-Diff Black 90 ÷ 200 = 0.45 50 ÷ 200 = 0.25 -0.20 White 80 ÷ 200 = 0.40 120 ÷ 200 = 0.60 0.20 0.40 Thus, there does appear to be discrimination as whites are 40% more likely to be offered jobs in the white part of town after controlling for differences elsewhere. It is likely not statistical discrimination as the pattern of discrimination is defined by neighborhood boundaries. It is also likely not customer-based discrimination. If it were, then we would expect to see an overwhelming number of blacks being hired in the black neighborhood. It could be customer- based discrimination, however, if only white customers are discriminatory. The same goes for employer-based discrimination in that if this is the source of the discrimination then it arises from the owners of the firms in the white part of town (white owners?) and not from the owners in the black part of town (black owners?). Lastly, it is probably not employee-based discrimination as both types of workers were offered jobs in both locations. 9-2. Suppose black and white workers are complements in that the marginal product of whites increases when more blacks are hired. Suppose also that white workers do not like working alongside black workers. Will discrimination by white employees lead to the firm choosing to completely segregate its work place? Does it create a wage differential between black and white workers? As blacks and whites are complements in the production process, there is an incentive for employers to employ blacks and whites together in the work place if the increase in productivity achieved by integrating the work force is higher than the extra wages employers must pay white workers to compensate them for working alongside blacks. Thus, as long as the differential needed to encourage white workers to work with black workers is not too large, there will be a wage differential and the workplace will not be completely segregated. If this is the case, the

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labor sol Chap009 - Chapter 09 Labor Market Discrimination...

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