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Sessions 19 and 20 Theories of discrimination Reading: Borjas Ch 9 p 365382, p 402-404
Introduction
Discrimination occurs when the marketplace takes into account factors such as race and gender when making economic exchanges Four main types of discrimination: wage, employment, occupational (job) and human capital
Race and Gender in the Labour Market
• Men earn more than women, and whites usually earn more than nonwhites. • Differences in educational attainment between whites and nonwhites account for a portion of the wage differential.
The Discrimination Coefficient
• Taste discrimination (Becker 1957) translates the notion of racial prejudice into an economic concept. – Racial prejudice causes employers to blindly perceive the costs of hiring blacks as being higher than the true cost.
– Even though it costs wb dollars to hire one person-hour of black labour, the employer acts as if it costs wb(1+d) dollars, where d, d>0, is the discrimination coefficient. – The discrimination coefficient gives the percentage ‘markup’ in the cost of hiring a black worker attributable to the employer’s prejudice.
Sources of Discrimination
• Fall within Becker’s theory of labour market discrimination, based on the concept of taste for discrimination: - Employer discrimination - Employee discrimination - Customer discrimination - Statistical discrimination
Employer Discrimination
• Assume: - Only two types of workers (B and W) who are perfect substitutes in production (role of capital is ignored) - Firms are competitive - Production function: q = f ( E W + E B ) - Assume also, that: w B < wW • A non-discriminatory firm would therefore hire only black workers
The Employment Decision for a Firm That Does Not Discriminate Dollars
wB
VMPE E*B
If the marketdetermined black wage is less than the white wage, a firm that does not discriminate will hire only blacks. It hires black workers up to the point where the black wage equals the value of...
Introduction
Discrimination occurs when the marketplace takes into account factors such as race and gender when making economic exchanges Four main types of discrimination: wage, employment, occupational (job) and human capital
Race and Gender in the Labour Market
• Men earn more than women, and whites usually earn more than nonwhites. • Differences in educational attainment between whites and nonwhites account for a portion of the wage differential.
The Discrimination Coefficient
• Taste discrimination (Becker 1957) translates the notion of racial prejudice into an economic concept. – Racial prejudice causes employers to blindly perceive the costs of hiring blacks as being higher than the true cost.
– Even though it costs wb dollars to hire one person-hour of black labour, the employer acts as if it costs wb(1+d) dollars, where d, d>0, is the discrimination coefficient. – The discrimination coefficient gives the percentage ‘markup’ in the cost of hiring a black worker attributable to the employer’s prejudice.
Sources of Discrimination
• Fall within Becker’s theory of labour market discrimination, based on the concept of taste for discrimination: - Employer discrimination - Employee discrimination - Customer discrimination - Statistical discrimination
Employer Discrimination
• Assume: - Only two types of workers (B and W) who are perfect substitutes in production (role of capital is ignored) - Firms are competitive - Production function: q = f ( E W + E B ) - Assume also, that: w B < wW • A non-discriminatory firm would therefore hire only black workers
The Employment Decision for a Firm That Does Not Discriminate Dollars
wB
VMPE E*B
If the marketdetermined black wage is less than the white wage, a firm that does not discriminate will hire only blacks. It hires black workers up to the point where the black wage equals the value of...
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