Lecture 19: Labor Markets and Discrimination

Outline:

1. Discrimination in labor markets

i. Discrimination defined

ii. Consequences of discrimination

iii. Types of discrimination

2. An economic model of discrimination

3. Indirect versus direct discrimination

4. Polices to fight discrimination

a. Affirmative action

b. Comparable worth

c. EEOC

5. Class versus race and gender?

6. Dollars and Sense: Article 35.

1. Discrimination in Labor Markets:

i. Definition:

Labor market discrimination involves treating people differently on the basis of some characteristic that has nothing to do with their ability to do a job.

* Discrimination is believe to account for some of the wage and employment differences among racial groups and by gender.

* Discrimination is fundamentally anti-meritocractic.

ii. Consequences of discrimination:

Material:

* lower wages earned by groups that are discriminated against

* higher levels of unemployment among groups that are discriminated against

Psychological:

* affects attitudes toward the workplace and toward society of those being discriminated against

* an affect the attitudes, aspirations and decisions of the children of those being discriminated against.

Question: What is the definition of success in an environment characterized by discrimination?

iii. Types of discrimination:

a. Employer: the employer's prejudice is the source of the discriminatory behavior.

b. Employee: the prejudice of employees of the firm is the source of the discriminatory behavior.

c. Customer: the prejudice of customers is the source of the discriminatory behavior.

2. AN ECONOMIC MODEL OF DISCRIMINATION

Assumptions of the model:

i. There are two types of workers -- skilled and unskilled.

ii. All skilled workers are identical in terms of their productivity, and all unskilled workers are identical in terms of their productivity.

iii. Workers are distinguished in terms of their gender - 50% of skilled workers are male and 50% are female, same for unskilled.

iii. There are two labor markets: one that requires skilled workers (elite) and one that doesn't require skilled workers (ordinary).

GRAPHS of the labor markets in the absence of discrimination.

Question: why will the wage be slightly higher in the elite labor market than in the ordinary labor market?

* Suppose that employers in the elite labor market decide that they are only going to employ men.

Question: What effect does this have on the labor markets?

Effects of discrimination:

a. The supply of labor decreases in the elite L/M.

b. The supply of labor increases in the ordinary L/M.

If wages are flexible:

c. The wage in the elite L/M rises and the wage in the ordinary L/M falls.

d. The level of employment in the elite L/M decreases and the level of employment in the ordinary L/M increases.

If wages cannot fall:

e. The wage increases in the elite labor market and remains constant in the ordinary labor market.

f. The level of employment in the elite L/M falls and the level of employment in the ordinary L/M remains constant but unemployment is created in the ordinary L/M.

Note: All workers in the ordinary L/M may bear the cost of unemployment but if existing workers keep their jobs and new workers don't get hired then it is the skilled women who can no longer work in the elite L/M who will end up bearing the cost of unemployment.

Question: How does this discrimination lead to inefficiency?

3. Direct versus indirect discrimination:

Direct discrimination involves individual prejudices and individuals overtly treating people on the basis of some characteristic other than their ability to do a job.

* Laws against direct discrimination have reduced the overall extent direct discrimination in the US.

Indirect discrimination is more subtle and is typically the result of past discrimination which has becomes institutionalized. It involves systematic barriers to people gaining the ability to do a job.

For example:

* unequal access to high quality schooling

* lack of attachment to school as a source of self-esteem

* cultural biases in standardized testing

* lack of community in higher education* differences in socialization

* differences in attachment to the labor market

* Indirect discrimination may persist long after direct discrimination has disappeared.

"Statistical discrimination" involves treating people not as individuals but on the basis of their membership in a particular group.

* Statistical discrimination is illegal.

An example:

An employer may not want to hire a woman because "women get pregnant" (she may cost the firm money if she takes maternity leave or she may leave the job) even though the individual woman may have no intention of getting pregnant. The employer reasons that it is preferable to hire a man because "men don't get pregnant".

4. Polices to fight discrimination:

1. Affirmative action - identifying, hiring, and promoting qualified candidates for jobs from groups that face discrimination

2. Comparable worth - equal pay for equal kinds of work.

3. Laws and the EEOC (equal employment opportunity commission) - government agency responsible for enforcing laws against discrimination.

5. Issues of class versus issues of race and gender:

Question: To what extent are problems of race and gender inequality problems of class rather than problems of discrimination?