Chapter 11 Notes
Prevalence and Size
Again, the size of the wage differential depends on the distribution and intensity of employees' discriminatory tastes, as well as the relative number of women seeking employment No pay differential would occur, and all women would work with non-discriminatory men if • Employees with no taste for discrimination against women represent a large proportion of male workers • Relatively few women are seeking jobs Some women will have to work with discriminating male workers if • Discriminatory tastes are widespread • Relatively large numbers of women are seeking jobs Discriminatory male employees will require higher compensation to work with women, resulting in a wage differential between male and female workers • Still possible that women may be paid less to compensate • More variation will occur in male wages
Employer Discrimination
An employer who has a taste for discrimination against women will act as if there is a non-pecuniary cost of employing women equal in dollar terms to dr (the discrimination coefficient) The cost of employing a man will be his wage wm, but the full costs of employing a woman will be her wage plus the discrimination coefficient, wf + dr A discriminating employer will hire a woman only if the full cost of employing her is no greater than the cost of employing a man 𝑤𝑚 ≥ 𝑤𝑓 + 𝑑𝑟 This implies that the discriminating employer will hire a woman only at a lower wage than a man 𝑤𝑓 = 𝑤𝑚 − 𝑑𝑟 The lower female wage • Exactly compensates the employer for the disutility of hiring a woman, dr • Means women are paid less than their productivity
Job Search
Another source of monopsony power for the firms is search costs Workers such search among employers for a good job match Search costs can include opportunity costs and out-of-pocket costs • Takes time to look for a job • Printing a resume • Transportation to interviews • Moving is expensive Employers can exploit this greater monopsony power over women and offer them lower wages than men
Customer Discrimination
Customer discrimination is where customers or clients have tastes for discrimination against women and will act as if there is non-pecuniary cost associated with purchasing a good or a service from a women equal to their discrimination coefficient, dc. These customers will behave as if the full price of the good or service is p + dc if sold or provided by a woman, but only p is sold or provided by a man • Women will sell less, or will have to sell below market price to sell as much as a man
The Overcrowding Model
Demonstrates that, regardless of the reason for occupational segregation (socialization, personal preferences, or labor market discrimination), the consequence may be a male-female pay differential This differential will occur if demand (job opportunities) in the female sector is small relative to the supply of women available for such work Results consistent with the fact that, all else equal ,earnings tend to be lower in predominately female than in predominantly male jobs Starting at non-discriminatory equilibrium, the wage rate is the same in both types of jobs. Why? • All workers are equally qualified for both types of jobs • If the equilibrium wage was higher in one type of job, workers would move to that job What happens when women choose to concentrate typically female jobs or are discriminated out of "male" type jobs? • Restrictions on only men in male jobs, causes a decrease in the supply of workers for M jobs • Women must "crowd" into F jobs, increasing the supply of workers
A vicious circle?
Discrimination against women in the labor market reinforces traditional gender roles in the family, where adherence to traditional roles by women in the family provides a rationale for labor market discrimination Thus, a decrease in labor market discrimination, through effective policies, will have feedback effects as the equalization of market incentives between men and women induces further changes in women's supply-side behavior
Employee Discrimination
Employee discrimination is where a male employee who has a taste for discrimination against women will act as if there is a non-pecuniary cost of working with women equal to his discrimination coefficient, de. Thus a discriminating male worker would receive wm if he did not work with a woman, and he would only be willing to work with a woman at a higher wage (wm + de)
Overcrowding Model- Productivity
Employers of women in F jobs accommodate a larger number of workers by substituting labor for capital • The lower wages for women make it profitable to use labor-intensive production methods • Women are less productive because they have less capital to work with The higher wage in the male sector encourages employers to substitute capital for labor • Men are more productive because they have more capital to work with
Examples of Tastes for Discrimination
Employers who are fine with hiring women as secretaries or assistants, but reluctant to hire them as plumbers Men who are willing to work with women in complementary or subordinate positions, but dislike interacting with them as equals or superiors Customers who purchase perfume from female clerks, but avoid women who sell cars who are attorneys
The Internal Labor Market
Firms hire workers from the outside labor market for entry jobs Remaining jobs are internally allocated by the firm as workers progress along the promotion ladders and acquiring firm-specific skills The internal labor market determines wages for each job category and the allocation of workers and is insulated from the impact of market forces
Tastes for Discrimination
Gary Becker conceptualized discrimination as personal prejudice, or what he termed taste against associating with a particular group In this model, employers, coworkers, and customers may all potentially display such tastes for discrimination • Not necessarily that men don't want to associate with women • May be more the desire to maintain "socially appropriate" roles
Feedback Effects
Human capital theory and other supply-side explanations for gender differences in economic outcomes tend to emphasize the role of the gender division of labor in the family causing differences between men and women in the labor market outcomes Labor market discrimination references the traditional division of • Weakening women's LFA • Discouraging woman from making human capital investments • Prioritizing the husband's career
Why does discrimination exist?
If discrimination isn't profit-maximizing, how does it withstand competitive pressures? • Discrimination may be the result from a lack of competitive pressures in the economy o We would expect that discrimination is less severe in competitive industries rather than monopolistic industries • Unions may be considered a barrier to competition o More likely to arise in less competitive industries o Thus, the declining gender differences in union representation have boosted the wages of women relative to men
Women's Pay
If employee discrimination does exist, it may be a factor causing occupational segregation and pay differentials • Could also create a barrier to the employment of women in supervisory jobs Employee discrimination may adversely affect the morale and productivity of discriminating male workers who are forced to work with women • Would make employers reluctant to hire women o If they do hire women, they may pay them less If male employees have tastes for discrimination against women, they may be reluctant to train them in informal on the job training, causing women to earn less and be less productive
Feedback Effects
If some employer views women as having more job instability • This may lead them to give women less firm-specific training and to assign them to jobs where the costs of turnover are minimized • So, women experience little incentive to stay with the employers • They may respond by exhibiting exactly the unstable behavior employers expect The employer's perceptions are confirmed, so they don't see any reason to change their discriminatory behavior
Exaggerated Beliefs
If such employer beliefs are simply incorrect or exaggerated or reflect time lags in adjusting to a new reality, actions based on them are clearly unfair and constitute labor market discrimination • Generates wage and occupations differences between men and women that is not accounted for by productivity differences If these beliefs are not just personal prejudices, with time, the employer will update their beliefs according to new information • May be a slow process • Some discrimination may be unconscious, and less susceptible to changes or updating
Power Couples
In the past, when the husband's job prospects usually determined the location of the family, the wife had little choice but to take whatever job was offered to her An increasing number of two-career couples work in different locations and commute or see each other on weekends, however, most seek jobs in the same location • It's more difficult to fine two acceptable jobs in a single location, than it is to find one • May negatively affect both partners salary
Discrimination Coefficient
Individuals with tastes for discrimination against women act as if there were non-pecuniary costs of associating with women • Non-pecuniary cost: A non-monetary cost, such as the feeling of distaste experienced when an individual has to associate with a women who holds what is viewed as a socially inappropriate role The strength of the individual's discriminatory taste is measured by his or her discrimination coefficient, or the size of these costs in money terms
Theories of Labor Market Discrimination
Labor Market Discrimination: The situation when two equally qualified individuals are treated differently solely on the basis of their gender (or race, ethnicity, age, or disability) Models assume that male and female workers are equally well qualified and, in the absence of discrimination, would be equally productive and receive the same pay • "Equally productive"= Have the same Marginal Product, MP o The increase in output of a firm that results from the hiring of an additional worker, all other factors remaining constant
Discrimination is Costly!
Less discriminatory firms should have lower costs of production • Discrimination gives employer the opportunity to hire more of the lower-priced female labor and less of the higher-priced male labor Such a competitive advantage would drive the more discriminatory out of business in the long run As the less discriminatory firms expand, the demand for female labor increases, and the male-female pay gap would be reduced If there were enough entirely non-discriminatory firms to absorb all the women workers, the gender pay gap would be eliminated
Monopsony Power
May also be the case that employers some monopsony power in the labor market, which plays a role in producing and perpetuating the gender pay differential. Monopsony power: A firm has some power to set the wages of its workers • Similar to monopoly power, where a firm has some ability to set the price of its product A firm can gain monopsony power when it is a large buyer of labor relative to the size of a particular market
Empirical Results
One study compared the wages of men and women (within the same narrowly defined white-collar occupations) in sex-integrated and sex-segregated firms Men earned more in sex-segregated (predominately male) firms than in integrated firms Women earned more when they worked with men than when they worked only with other women Is this what we expect with employee discrimination? • No • More likely the case of employer discrimination, or monopsony power
The Dual Market
Segmentation of male and female workers into primary and secondary jobs is likely to produce both pay and productivity differences between them due to unequal access to on the job training
Statistical Discrimination
Statistical Discrimination: When employers believe that, on average, women are less productive or less stable employees, and treat individual women as if they conform to the average • Potentially more consistent with profit maximization and thus, the persistence of discrimination in the long run Assumes that employers' decision-making is with incomplete information and uncertainty • Even if you know the qualifications, you don't know how the individual will perform on the job or how long they will stay with the firm
Perceptions of Average Gender Differences Can Result in a Pay Gap
Suppose an employer is screening applicants for an entry-level managerial position • For simplicity, he's only considering two major qualifications, education and grades This employer believes that for the same level of qualifications, women as a group will be less likely to remain with the firm than men • This employer is less likely to hire a woman for the job in general, and may only hire a woman at a lower wage The employer could invest in more careful screening to distinguish more career-oriented women from less, but this may not be cost-effective for the firm to invest more resources
Prevalence and Size
The consequences of this situation for female workers depends on the prevalence and size of discriminatory tastes among employers, as well as the number of women seeking employment Nondiscriminatory employers have dr = 0 • Willing to hire men and women for the same wage rate Women will be absorbed by the non-discriminatory firms if • The number of non-discriminatory employers is relatively large, or • Relatively few women are seeking employment No discriminatory pay differential occurs, even though some employers have tastes for discrimination against women If discriminatory tastes are widespread, or the number of women seeking employment is relatively large, some women will have to find jobs at discriminatory firms 𝑤𝑓 < 𝑤𝑚 If the labor market is competitive, additional workers are always available at the going wage, so no employer is willing to pay more, and no worker will accept less All employers pay the same rate established in the market for workers of a particular sex
Primary and Secondary Jobs
The dual labor market emphasizes the distinction between primary jobs, where there are high levels of firm-specific skills, and secondary jobs, with lower levels of firm-specific skills • Primary jobs have higher wages, good promotion opportunities, and encourages long-term attachment to the firm; tend to be located in monopolistic industries • Secondary jobs have lower wages, fewer promotion opportunities and higher rates of labor turnover; tend to be located in competitive sectors Could be at the same firm- between management and clerical categories
Discrimination Equilibrium
The more prevalent and the stronger employers' discriminatory tastes against women or the larger the number of women seeking employment, the larger the market wide wage gap 𝑤𝑚 −𝑤𝑓, will be between men and women In equilibrium, the market wage differential between men and women must be large enough so that all the women who are looking for employment are able to obtain it • Including those who must find work at discriminatory firms
Institution Models
These explanation emphasize that labor markets may not be as flexible as the simple competitive model assumes Rigidities are introduced within the firms or by various barriers to competition through the monopoly power of firms in the product market or unions in the labor market
Statistical Discirmination
This is a little bit more complicated if the employer's views are correct on average In this case, market wide labor market discrimination does not exist • Any resulting wage and employment differences between men and women, on average, would be accounted for by average productivity differences And yet, individual women can still be harmed by this "on average" thinking • A woman who would be as productive and stable as a male counterpart is denied employment or paid a lower wage The practice of judging an individual on the basis of group characteristics rather than on his or her own merits is stereotyping and discrimination and illegal in labor markets
Model Results
This model is consistent with some of the inequalities between men and women that we observe in the labor market • Wage differential may exist between equally qualified male and female workers because of discriminatory employers will hire women workers at a wage discount • Since less discriminatory employers will hire more women workers than more discriminatory employers, male and female workers may be segregated by firm • If employer taste for discrimination vary across occupations, occupational segregation by sex can also occur
Overcrowding Model- Pay Differential
This model shows how gender segregation in employment may cause a wage differential This differential will occur if the supply of women seeking employment is large relative to the demand for labor in the F jobs Labor market discrimination (or some other barrier) eliminates the free mobility of labor between the two sectors that would otherwise ensure wage equality between the two sectors
Non-discriminatory Employers
What's an employer to do? • Could have an all-male or all-female workforce o Would result in male and female workers being paid the same, just not working together Having a segregated workforce is probably not profitable and changing from complete segregation to integration is not without its cost • New training, paying the discrimination premium = adjustment costs
