Employer Taste for Discrimination Nondiscriminatory firms will hire at the same wage, but discriminatory firms act as if MRP is lower than it is and will only hire at a lower wage. With supply S2, there will be a wage gap in equilibrium. Graph by Harcourt, Inc.

An Increase in Nondiscriminatory Firms More firms with no taste for discrimination is like a shift out in the demand for minorities and increases the relative wage. Graph copyright © 2003 by Pearson Education, Inc.

A Decline in the Taste for Discrimination A decline in firms’ taste for discrimination is like a rotation out in the demand for minorities and increases the relative wage. Graph copyright © 2003 by Pearson Education, Inc.

Occupational Crowding If a minority group is denied entry to a given sector, the sector they are allowed in can become crowded, leading to a wage gap between sectors, and hence between groups. Graph copyright © 2003 by Pearson Education, Inc.

Using a Signal for Screening In this example, it would make sense to use a score on the test as a screen for hiring, even though some mistakes would be made. The further apart the distributions the better the screen. If they were so noisy that they were very close, it could be worth investing in a new signal. Graph copyright © 2003 by Pearson Education, Inc.

Statistical Discrimination – Group as Screen If there is a difference on average between groups, group identity might be used as a screening device. The closer the group distributions, the more costly statistical discrimination will be. Graph by Harcourt, Inc.

Earnings Distributions Earnings distributions have a long right tail. Graph by Harcourt, Inc.

Constructing a Lorenz Curve Households are lined up by income quintiles. Here the lowest income quintile earns just .038 of total income. The top quintile earns 1-.532 = .468 of total income. Equality would imply a straight line. Graph copyright © 2003 by Pearson Education, Inc.

Inequality Increased 1980 t0 1992 Graph copyright © 2003 by Pearson Education, Inc.

Supply-Side Sources of Widening Inequality For supply-side sources to explain the observed trends, supply of higher skilled workers would have to decrease and of lower-skilled workers would have to increase. Graph copyright © 2003 by Pearson Education, Inc.