Adding in Race, Culture and Ethnicity (Powell 17-36)

How has the earnings ratio changed? Relatively constant at 64% Early 1980s decreased to 59% Increased steadily since then to 71% in the gender earnings ratio was calculated as 75% 2004 the gender earnings ratio was calculated as 79%

Important things to remember Increases in the the gender earning ratio could also mean that men’s wages are decreasing This varies by race

Why the variation? Increases in female labor force participation Increases in education by females Increases in on the job training by females Increases in experience by females

How does wage vary with… Education? –Increase education increases wage Age? –Increase age usually means more seniority thus higher wages –Younger workers have a higher female to male earnings ratio (females earn a larger % of a man’s wage) – about 87%

Earnings ratio and Age

Why the difference? Discrimination Difference in Preferences –In work vs. home production

How vary by race? Same basic pattern as white workers exists for Hispanic and Asian workers Education influences differ by gender within the race –Ex. Gains to education are greater for black men then black women –Increases in education cause the earnings ratio to decrease (increases the denominator so the ratio is smaller)

Goal See what is –Earnings differentials exist Evaluate why they are there –Discrimination –Choice –Tastes

Remember Female-Male earnings ratio must be between two COMPARABLE people with VERY similar positions to say anything about the number Why?

If compare OVERALL male and female wages… Gap looks bigger than it actually is Why?? %femaleEarnings ratio Managers Physicians Insurance Salesmen

What appears true… As the number of females decrease the female to male earnings ratio decreases If look at occupations with a dominate number of females see a similar story

% femaleEarnings ratio Registered nurses Librarians Secretaries98.790

In-class activity 7 Wage differentials…

So what is the deal?? As women take a stance the earnings ratio becomes more equalized BUT…labor force participation of women has been increasing, so why hasn’t the earnings ratio increased faster? –Women are clustered in lower wage occupations Elementary school teachers, sales, administration…

Men?? Clustered in more professional and executive occupations, and crafts such as plumbing, electricians, and mechanics Why do these types of jobs have a higher pay scale? How are wages determined??

How are wages determined?? The Labor Market Who demands labor? –Firms Who supplies labor? –Workers

Law of Demand As wage for a job (decreases) increases the Quantity demanded of labor for that job (increases) decreases

Labor Demand Curve Graphical representation of the labor demand schedule Used to represent the relationship between wage and number of workers Why type of relationship do you expect wage and number of workers to have?

Number of Workers Wage DLDL

Law of Supply As the wage for a job increases (decreases) the quantity of labor supplied for that job increases (decreases)

Labor Supply Curve Graphical representation of the relationship between wage and number of workers What type of relationship do we have between wage and number of workers?

Number of Workers Wage SLSL

Auction Model Can think of labor supply and labor demand as an auction where firms bid the wage down and workers bid the wage up until Q S L and Q D L are equal at the same wage

But… There is only one price where Q s L =Q DL This is called the equilibrium wage The market is always working towards this wage Number of workers able and willing to work equals the number of firms able and willing to hire

Scissors and economics? Alfred Marshall compared Supply and demand to a pair of scissors –“It is impossible to say which blade is actually doing the cutting just like it is impossible to say whether labor demand or labor supply is responsible for the wage