Labor Market Discrimination

Flashcards on labor market discrimination, covering topics such as definitions, Becker's model, employer/employee/customer discrimination, and statistical discrimination.

Discrimination

When labor market participants take into account factors like race and gender when making economic transactions.

Discrimination Coefficient (d)

A positive number representing the percent markup in the cost of hiring a black worker due to employer prejudice.

Nepotism

When an employer's utility-adjusted cost of hiring a favored worker equals wB(1-n) dollars, where n is a positive number.

Key Implication of Becker's Model

Firms have a segregated workforce if black and white workers are perfect substitutes.

Decision rule for a prejudiced employer

Hire only blacks if wB(1 + d) < wW; Hire only whites if wB(1 + d) > wW.

Discrimination and Profits

The most profitable firm is the firm with a discrimination coefficient equal to zero; this color-blind firm hires an all-black workforce of EB* workers and has profits equal to $max dollars.

Employer Discrimination and Compensating Wage Differentials

A compensating differential arises to compensate employers for hiring those workers. In effect, the market "compensates" employers so as to soften their resistance to hiring blacks.

Allocation of Black Workers to Firms

Black workers are matched with the least-prejudiced employers, while white workers are matched with the most-prejudiced employers.

Employee Discrimination Outcome

The competition for the cheapest workers will eventually equalize the wage of the two groups, as employers increase their demand for whichever group costs less.

Customer Discrimination

Face-to-face contact between black workers and white customers lowers the probability that the firm hires black workers by about 15 percentage points.

Customer Discrimination in Baseball

Even after controlling for the position played and for the player’s career stats, the cards of white players cost about 10–13 percent more than the cards of black players.

Statistical Discrimination

Arises even in the absence of prejudice when membership in a particular group (for example, being a black woman) carries information about a person’s skills and productivity.

Statistical Discrimination Outcome

Applicants from high-productivity groups benefit from their membership in those groups, while applicants from low-productivity groups do not.