ECN 151 vocabulary

Current market discrimination

when 2 individual who are equally productivity receive different treatment → leads to feedback effect 

feedback effects

If people know that discrimination exists they will invest less into education, they know that the payoff is not high 

• Lower income and next generation will not be able to afford to invest

prejudice

hostile attitude toward a particular group

pre-market

individual productivity is affected by before level discrimination before they enter labor market

Audit studies and their issues

1. not well matched in characteristics

2. hawthorn efforts: when people know what the experiment is about and change their behavior subconsciously

3. accents

Polarization of the Labor Market

The “polarization of the labor market” refers to the reduction in employment that occurred in occupations that require mid-level skills, during the 1990s and 2000s

changes in tech have affected the decline in employment for men compared to women (true or false)

True: women are enrolling in schooling more

What is happening to the middle skill jobs?

They are declining

• technology shift

• more college degrees

Overtime, male participation rates have been dropping in the labor force. (TRUE or FALSE)

TRUE

What has caused the increase of inequality over the past three decades?

• increases in return to education

• increase in inequality within education groups

Sibling correlation is higher in ___ than the US

Scandinavian countries

Why does a reduction in minimum wage increase earnings inequality?

Minimum wage decrease, wages at the bottom of the distribution will decrease. The wages at the top stay the same. The ratio will increase. 90/10 ration will rise as 10th percentile falls.

Why might a decline in the fraction of workers who are unionized lead to an increase in earnings inequality?

Union improve the wages of low-mid skill union members, they are paid more than other workers. A decrease in this population will mean fewer low-mid skills workers will get a wage increase and average wages for those workers will fall. Wages at the top unaffected.

Why don’t we think the declining value of Min Wage and the decline of union power contribute to rising inequality in the last two and half decades?

Data says: there has been an increase of earnings in the top percentile and not to a decline at the bottom earnings

Minimum wage would make a difference on inequality if

increase in the proportion of the population close to the minimum wage value

human capital

the knowledge, skills, and assets of an individual

Assumption of the human capital model

perfectly competitive

able to observe worker’s productivity

What does a high interest rate indicate in the human captain mode?

Fewer people will invest in college as the high rate reduces the present value of benefits associated with investment

wage-schooling curve

exhibits diminishing marginal returns to education

Signaling model assumptions

• asymmetric information

• no added productivity as skill is fixed

The twin study eliminates

ability bias when estimating the rate of return to education

A condition for education signaling in the labor market is

the costs of obtaining education vary across workers who have different levels of productivity

One piece of evidence that the wage convergence between Black workers and white workers
that occurred during the 1960s and 1970s was due to something other than a decline in whites' levels of prejudice is that

wages converged the most in the south

If employers discriminate because customers are prejudiced then

they will likely charge higher prices for the goods or services they sell

Other things equal, in the model of employer discrimination one would predict that the observed level of labor market discrimination will

increase as the supply of minority workers increases

According to the theory of statistical discrimination, competition should

generate an incentive to discriminate

True about Affirmative Action Policies

Affirmative Action policies apply only to federal contractors

Affirmative Action policies require firms to report how many minorities are hired relative to those available in the labor pool

Affirmative Action policies require firms to alter the underutilization of minorities via a plan

When the ratio is small

the dispersion of earning are close to the average

Main Ideas about Inequality the last decades

• increase in equality where earnings in high and low wages are more dispersed

• 1980s onward: Low skill workers have had an decrease in earnings

• Earnings are less dispersed in lower especially for women

What effect does immigration for low skilled workers have on wage distribution?

Low skill immigration has a low effect on native born wage distribution

The effect of technology change

• increase productivity of high skill workers

• decrease need for lower skilled workers

Jobs with technology change

1. substitutes jobs routine in nature like feeding machines or data processing

2. There is a wage increase among high skilled workers, rising demand for non-routine skills

Title VII of the Civil Rights Act

Made it unlawful for any employer to discriminate against any individual with respect to
their compensation because of the individual’s race or gender, the individual’s country of origin, individual’s race, color, sex

employer prejudice detail

employers discriminate against groups because they do not like those groups

They maximize utility instead of profits

PC would not allow this to happen as they do not maximize profits

Policies to combat:

= targeted educational programs

statistical discrimination

• asymmetric information

• Use group membership as a signal about their productivity

• rational and may persist because they use all available info to maximize profit

Policies to help: restricting the signals that can be used to determine hiring and wages, point system that gives all workers the same test score and same treatment

selection bias

returns of schooling individuals with higher returns are more likely to obtain higher level of education

• this over or under estimate return to education

Compulsory school law

• tell kids when they can drop out or when they start school

• Kids will have difference level of education, so it is more specific on what amount of education they have

LOANS

• More people go to college, more loans asked for

• Average money needed in a loan is the same

• Most debt comes from for-profit, private university

HP wages

HW - C2 > LW

LP Wages

LW > HW - C1

What can affect male vs women earnings?

• Expectation that women will have kids

• occupation and hours

• characteristics affect by gender but can’t be observed

customer discrimination

customers are prejudice towards occupations. I.e. women servers in a diner, and male servers at a fine dining restaurant

Lundberg Signaling Model

• based on how good the signal is

• Higher B = better signal

When Ti is small,

there is a strong signal for work productivity

Textbook signaling model

This is based on the ability and productivity of the person. Higher productivity will equal higher wage.

Nuture is important in

wage and income difference

Economy 1960s

Post war, less inequality, bigger production

Economy now

• low production

• decline of mobility

• return to jobs are low

increasing production would improve inequality by 10%

improving inequality distribution would help by 70%