Theories of Discrimination Taste discrimination: individuals (employers, employees, customers) prefer certain individuals or groups to others. Statistical discrimination: agents make decisions about individuals based on their attributes and those of their group. This can be based on prior facts and thus not be discriminatory in the general use of the word. Or, it can be based on perceived notions and might be discriminatory. Pollution theory of discrimination: combines aspects of taste and statistical discrimination.
Theories of Discrimination Taste discrimination (Becker s Ph.D. dissertation): assume that all individuals are equally productive in a technical sense but that some like others more or less. Employer: the employer acts as if the wage they pay to individual or group they do not like is w(1 + d), where d = the discrimination coefficient Employee: employees act as if the wage they receive when they work with an individual or group is w(1 d), where d = the discrimination coefficient. They require a compensating differential. Customer: ditto for customers who have to directly deal with particular individuals or groups
Theories of Discrimination What are the effects of Taste Discrimination? Employer: Assume Q = f (E w + E b ), perfect substitutes If there are only discriminatory employers (d > 0). Equilibrium will depend on whether the b s have selfemployment opportunities. If not, they will be hired only if w w > w b (1 + d). What about profits? Discriminatory employers generally make lower profits. If there are enough non-discriminatory employers (for whom d = 0) get segregation of employees; can have integration when d = 0. w b = w w under certain circumstances. Similarly, can analyze equilibrium if a spectrum of employers exist by d.
Wage rate Employer Discrimination: One employer, one type of worker. Employer acts as if the wage rate is w b even though it is actually w*. Thus the amount of labor hired will be L b and not L*. w*(1 + d) = w b w* Supply of L b Demand L b L* Labor
Wage rate Employer Discrimination: Two employers, two types of workers, elastic supply functions w w w b (1 + d 1 ) w b (1 + d 0 ) w b Demand = VMP L Demand = VMP L L w Labor
Theories of Discrimination What are the effects of Taste Discrimination? Employee: Again, assume Q = f (E w + E b ). If there are only discriminatory E w s, then each acts as if the wage is w w (1 d) when they work with any E b. If w w = w b, an employer would never hire both. All firms will be segregated; profits will be the same; wages will be equal. If w b < w w, then those who hire E b make higher profits and will bid up the E b wages. What if Q = f (E b, E w ) and complementarity between E w and E b? Equilibrium will have wage differences. Discrimination lowers profits for employers; for employees, equilibrium might not differ.
Theories of Discrimination Statistical Discrimination: Employers judge an prospective employee (or schools judge an applicant, etc.) by their own imperfectly measured ability and performance as well as by that of their group. Consider an employer who gives candidates a test. The results of the test are measured with error. Employer will pay each candidate: w = αt + ( 1 α)τ, where T = test score and τ = mean test score of the candidate s group. There are many cases. Assume 2 groups and consider two main cases: (1) the groups have different τ but the same α; that is, they differ in average ability but the accuracy of the test is the same; (2) the groups have the same τ but different α.
Wage rate Groups means differ, τ w > τ b, but accuracy of test is the same, i.e., α s are the same. Not very good assumptions. W B ( 1 α)τ w Slope = α ( 1 α)τ b w w = αt + ( 1 α)τ w w b = αt + ( 1 α)τ b T* Test score
Wage rate Groups means are the same, τ s are the same, but accuracy of test differs, α s differ. Slope = α w W B α b ( 1 α b )τ w w = α w T+ ( 1 α w )τ w b = α b T+ ( 1 α b )τ ( 1 α w )τ T Test score
A Pollution Theory of Discrimination What do the two main theories of discrimination say about gender? Taste: Do most men prefer not to be with women? Statistical: To what attributes would the model be referring? (e.g., expected experience?, competitiveness? determination? intelligence?) Many historical cases when men protected the prestige or status of their occupations or jobs by barring women: shoe making, foundry work, slaughterhouses in police forces, fire houses in medicine and law (in the 19 th century) difference between protecting wages, incomes, and jobs, and protecting status.
A Pollution Theory of Discrimination How can we model the protection and barring of women from an occupation or job? Assume C is a single-valued characteristic the defines the occupation. The presence of women pollutes the occupation or job because it signals that a change occurred (e.g., technical shocks that could downgrade the occupation). But this effect is only if C for a job is below the median for women. That is, female entrant is viewed as a random draw from the female population. Equilibrium is: segregation of occupations above the median, integration below, and possible more segregation further down. What would end this form of discrimination?
What is the Evidence? What Do We Think Are the Causes of Differences? Evidence: on occupations, earnings; narrowing in both; narrowing across cohorts, also within cohorts. Oaxaca Decomposition: 20-30% can be explained, more earlier than later; narrowing in the observables. Narrowing in the un-observables? Expectations of women; that others have of them. Why change? Incorporate changed labor market expectations into a model of statistical discrimination. Add dynamics. Is there taste discrimination against women? Goldin- Rouse paper; audit studies; other papers regarding competition and negotiation. What has been the role of anti-discrimination legislation?