4 - Measuring Discrimination and Effect of Policies

What is one simple way you measure discrimination

The difference in mean wages

Equation for the difference in mean wages

What is the equation for group 1's earnings function

w₁ = α₁ + β₁s₁

How do you represent the average of a value?

A bar on top

What does α stand for

Raw labour / Base Wage

What does β stand for

Return of schooling on wages

What does s stand for

Schooling

What is the equation for raw wage differential between group 1 and 2

∆w(bar) = w₁(bar) - w₂(bar) = α₁ + β₁s₁(bar) - α₂ - β₂s₂(bar)

Oaxaca-Blinder Decomposition

A technique that decomposes the raw wage differential into a portion related to a difference in skills and a portion attributable to labour market discrimination

What equation do you get from the Oaxaca-Blinder Decomposition

∆w(bar) = (α₁-α₂) + (β₁-β₂)s₂(bar) + β₁(s₁(bar)-s₂(bar))

Which part of the raw wage differential shows wage differences due to discrimination

(α₁-α₂) + (β₁-β₂)s₂(bar)

Whcih part of the raw wage differential shows wage differences due to skills

β₁(s₁(bar)-s₂(bar))

What does (α₁-α₂) show in the wage differential equation

Group 1 are getting more for the same level of schooling

What does (β₁-β₂)s₂(bar) show in the wage differential equation

Group 1 are getting higher returns to schooling

What are the axes on a wage differential diagram

y axis - Dollars

x axis - Schooling

What is plotted on a wage differential diagram

Earnings functions for both groups

How do you show the raw wage gap on the wage differential diagram

The difference between the wages each group get

How can you show which part of the wage gap is due to discrimination on the wage differential diagram

Find the wage a group would get on the other group's curve for the same level of the schooling and the difference between that wage and the actual wage is the difference caused by discrimination

How can you show which part of the wage gap is due to differences in skill on the wage differential diagram

The wage of the non-discriminated-against group would get - The value a discriminated group would get if they were in the other group

Graph for measuring the impact of discrimination on the wage

Does the Oaxaca-Blinder decomposition really measure discrimination?

Depends on whether all dimensions of the skill differences between 2 groups have been measured and controlled for

Why may the Oaxaca-Blinder decomposition measure discrimination incorrectly

Omitted variable bias

Omitted variable bias

Where a statistical model leaves out important variables

Why may omitted variable bias occur with differences in quality of education

Differences in quality of education may be due to gender differences and discrimination so may be endogenous, making them ineffective controls

Who conducted the decomposition of the male-female wage differential

Altonji and Blank (1999)

What did Altonji and Blank (1999) find regarding the raw log wage differentiall

There was a large raw log wage differential even when controlling for differences in education, age, race, region, occupation, and industry and most of this was due to discrimination

What does Holzer and Ihlanfeldt (1998) use to measure the effect of customer discrimination?

They use a difference-in-differences approach, comparing the percentage of newly hired black workers in contact firms with black versus white customer bases, and using non-contact firms as a control group.

What is one common tool used to identify and measure discrimination

Experiments

What do experiments allow researchers to do

Clearly estimate causal effects

Graph for Difference-in-Differences

What does µ_it stand for in the DiD estimator

Mean of the outcome in group i at time t

What are the values of i in the DiD estimator

i = 0 for the control group

i = 1 for the treatment group

What are the values of t in the DiD estimator

t = 0 for pre-treatment period

t = 1 for post-treatment period

Equation for the DiD estimator

(µ₁₁ - µ₀₁) - (µ₁₀ - µ₀₀) = (μ₁₁ - μ₁₀) - (μ₀₁ - μ₀₀)

Difference-in-Differences table

Difference-in-differences estimator

A method which captures the significant differences in outcomes across the treatment and control groups

What is the typical form of a regression model estimated in the DiD estimator

What does Treat_i stand for

If the individual is in the treatment group it =1, if they are in the control group then =0

What does Post_t stand for

=1 in the post-treatment period, =0 in the pre-treatment period

Assumptions of the DiD estimator (2)

Common Trend Assumption, Spillover trend assumption

Common Trend assumption

We expect that trends are common for the treatment and control group

Spillover trend assumption

There is no spillover effect of the treatment on the control group

What results when the DiD assumptions are violated

The DiD estimator is bias

Who used difference-in-difference in their studies (3)

• Bennedsen et al. (2019)

• Johnson (2011)

• Aaronson and Mazumder (2011)

How does Bennedsen et al. (2019) use the difference-in-differences method?

They apply it to study the impact of a law requiring firms to provide gender-disaggregated wage statistics, comparing the wage changes before and after the law implementation.

What law change did Bennedsen et al. (2019) study

UK firms became required to report gender pay gaps starting in 2017

What did Bennedsen et al. (2019) find regarding gender pay gap

That gender pay gap transparency significantly reduces the gender pay gap within firms, suggesting that transparency can be an effective tool in improving gender pay equality in the workplace