Sources of discrimination Equilibrium in a perfectly competitive labor market has no discrimination Wages equal marginal revenue products Everyone who wants a job has a job

Sources of discrimination W = P*MP If W is above equilibrium, there may be nonrandom sorting among job seekers into available jobs –Recessions –Minimum wages, unions MP may be artificially low –Statistical discrimination –Unequal access to training –Taste discrimination P may be artificially low –Customer discrimination

Women have gained relative to men since the mid 70s

Progressive gains for younger cohorts

As cohorts age, women’s wages fall relative to men, but not all gains are lost

Blacks have gained relative to whites, men since the 1940s Male peak in 1999; Female peak in 1975

Discrimination definitions Equally skilled people in different demographic groups are treated differently by the labor market (employment or earnings) Unproductive demographic attributes are priced by the labor market as if they were a compensating differential

Numbers Wage P*MP M P*MP F WMWM WFWF WFWF explained unexplained

Computing market discrimination measures W M = β M H M + ε M for males W F = β F H F + ε F for females W M and W F : Male and Female wages H M and H F : measures of education, experience, …. ε M and ε F random errors with zero mean β M, β F estimated coefficients Earnings Function

Computing market discrimination measures W M = β M H M + ε M for males W F = β F H F + ε F for females Observed difference: W M – W F W M – W F = β M H M + ε M - β F H F + ε F + (β M H F - β M H F ) = β M (H M - H F ) + H F (β M - β F ) + (ε M - ε F ) Earnings Function ExplainedUnexplained Error has zero avg

Computing market discrimination measures Avg Observed difference: W M – W F Explained = β M (H M - H F ) Unexplained = H F (β M - β F ) Wage Differential

Anti Discrimination Legislation Equal Pay Act of 1963 Prohibits differential rates of pay on the basis of sex for those who "do equal work on jobs, the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions, except where such pay is made pursuant to seniority merit system system which measures quantity or quality of production differential based on any other factor than sex

Anti Discrimination Legislation Title VII of the Civil Rights Act (1964) It is an unlawful employment practice to "fail or refuse to hire or to discharge any individual or otherwise to discriminate against any individual with respect to his compensation terms, conditions or privileges of employment, because of such individuals race color religion sex, or national origin, or to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities….

Anti Discrimination Legislation Affirmative Action: Executive Order (1965, 1968, 1971) Requires that contractors take "affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, or national origin." 1971: "set numerical goals and timetables … to correct deficiencies."