The Economics of Discrimination

Prof. G. LouryEC 1370

March 16, 2010

1. Standard economic theory (Becker) suggests wage discrimination cannotpersist as an equilibrium phenomenon in competitive labor markets.

2. Gross wage and employment differences by race are large and persistent.

3. Attitude measures show declining but still persistent “racial prejudice”.

4. Measures of cognitive skills show large and persistent racial differences.

5. So, is the racial wage/employment gap due to discrimination or to skill differences between the groups?

6. We examine evidence from five recent studies which suggest that racial discrimination in the labor market remains a serious problem:

a. Charles and Guryan document role of “racial prejudice”b. Urzua investigates role of cognitive and non-cognitive skills.c. Lang and Manove show that blacks of given ability get more education than do comparable whites.d. Vigdor shows racial wage convergence in US South largely due to improved quality of education for younger cohortse. Pager use of “testers” reveals employers’ discriminatory choices.

EC 1370 Lecture Summary: The Economics of Discrimination, 3/16/2010

Per Capita Annual Hours of Employment for Native-Born Non-Hispanics Aged 25 to 59; 1968 to 2007

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

PE

R C

AP

ITA

HO

UR

S O

F E

MP

LO

YM

EN

T

White Men

Black Men

Black Women

White Women

Median Wage and Salary Earnings for Native-Born Non-Hispanics Reporting Earnings

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

White Men

Black Men

Black Women

White Women

(Showing that racial prejudice still affects black/white wage gap, andthat what really matters is degree of prejudice of the marginal, not the average employer.)

Racial Attitudes of National Samples of Whites; General Social Survey, 1972 to 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Would vote for a black candidate

Would vote forOpen Housing

Law

Believe blacks shouldn't

push

Oppose interracialmarriage

Believe whites have right to segregate their neighborhoods

Dependent Variable = ln(wages); “x” indicates “factors controlled for”

2008(Showing the importance of non-cognitive skills when accountingfor black/white wage differences.)

(Documenting that, conditional on cognitive ability score, black USworkers, male and female, obtain more education than do whites.)

(Accounting for trends in black/white wage gaps in the South andestablishing a key role for schooling quality in explaining the trend.)

(Together with Pager (2003) using “tester” experimental data to establish the reality of racial discrimination in the labor market for young unskilled males in NYC and Milwaukee, emphasizing the debilitating effects for blacksof having a criminal record.)

Similar Results with Milwaukee Data