Employer Taste for Discrimination
Nondiscriminatory firms will hire at the same wage, but discriminatory
firms act as if MRP is lower than it is and will only hire at a lower
wage. With supply S2, there will be a wage gap in equilibrium.
Graph by Harcourt, Inc.
An Increase in Nondiscriminatory Firms
More firms with
no taste for
discrimination is
like a shift out in
the demand for
minorities and
increases the
relative wage.
Graph copyright © 2003 by Pearson Education, Inc.
A Decline in the Taste for Discrimination
A decline in
firms’ taste for
discrimination is
like a rotation
out in the
demand for
minorities and
increases the
relative wage.
Graph copyright © 2003 by Pearson Education, Inc.
Occupational Crowding
If a minority group is denied entry to a given sector, the sector they
are allowed in can become crowded, leading to a wage gap between
sectors, and hence between groups.
Graph copyright © 2003 by Pearson Education, Inc.
Using a Signal for Screening
In this example, it would make sense to use a score on the test as a
screen for hiring, even though some mistakes would be made. The
further apart the distributions the better the screen. If they were so
noisy that they were very close, it could be worth investing in a new
signal.
Graph copyright © 2003 by Pearson Education, Inc.
Statistical Discrimination – Group as Screen
If there is a difference on average between groups, group identity
might be used as a screening device. The closer the group
distributions, the more costly statistical discrimination will be.
Graph by Harcourt, Inc.
Earnings Distributions
Earnings distributions have a long right tail.
Graph by Harcourt, Inc.
Constructing a Lorenz Curve
Households
are lined up by
income
quintiles. Here
the lowest
income quintile
earns just .038
of total income.
The top quintile
earns 1-.532 =
.468 of total
income.
Equality would
imply a straight
line.
Graph copyright © 2003 by Pearson Education, Inc.
Inequality Increased 1980 t0 1992
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Supply-Side Sources of Widening Inequality
For supply-side sources to explain the observed trends, supply
of higher skilled workers would have to decrease and of lowerskilled workers would have to increase.
Graph copyright © 2003 by Pearson Education, Inc.