On male-female pay gap– Researchers decompose the pay gap into the portion

explained by differences in productivity characteristics and the portion unexplained (discrimination).• 2/3 of the pay gap can be explained by differences in experience,

industry, occupation, etc.• 1/3 is unexplained• This is one example of study, other studies have different results

– Pay gap has been falling equally due to a rise in relative productivity characteristics of women and a decline in the unexplained gap.

On black-white pay gap– 89% of pay gap can be explained by differences in

productivity characteristics. • difference in education diminished and shrunk the gap.• payoff to education has risen which expanded the gap.

Evidence

• Part of the gender wage gap is the result of rational choices made by women?– To work fewer/flexible hours– To choose safer less effort-intensive occupations

• Occupational segregation may be due to women choosing occupations, such as nursing and teaching, with skills that are useful in home production.

– To take time off for childcare• Due to shorter work careers, it is rational for women to invest less

in education and training.• Their stock of human capital will deteriorate when they are out of

the labor force.

• Do women invest less in human capital because of discrimination?– Women stay out of the labor force because of the low

pay in the labor market.– If discrimination declined, then more women may decide

to remain single or childless.

Rational Choice or Discrimination?

Occupational Segregation

• Definition: crowding of men into “men’s jobs” and women into “women’s jobs”

• Duncan Index: a summary measure for an economy used to measure the degree of occupational segregation.

• S = ½ * iMi - Fi

Mi, Fi are % males/females in LF who work in occupation i.

If no occup segregation, Mi = Fi and so the difference = 0 so S=0.

If much segregation, Mi – Fi is a big number and so S is large.With complete segregation, S = 100.S = % M or W who would have to change occupation to eliminate

segregation.

– two people with same work characteristics• Productivity, preferences• but different group (race, sex, age)

– receive different outcomes in labor market • wages, hiring, promotion

• Wage discrimination – Less pay for doing the same work

• Occupational job discrimination – restricted from entering some occupations

• Human capital discrimination – less access to productivity-increasing opportunities

such as formal schooling or on-the-job training

• Employment discrimination – not hired, unemployed

Wage Differentials: Discrimination

• employers base decisions upon the average characteristics of the group to which they belong– Age, education, race, gender and experience provide

some information about productivity

– imperfect predictors of productivity• Gender may provide information on job commitment -

women on average have higher turnover rates.• Race may provide some information about schooling quality

- blacks on average go to inferior schools than whites.• Young males pay higher insurance rates since they have more accidents

on average• Asians have good IT skills

• Employers are not malicious in practicing this type of discrimination– They gain since they minimize hiring costs

• Harmed: Workers different from average • Statistical discrimination will diminish if average

characteristics of the groups converge over time

Statistical Discrimination

• Assume men and women are equally productive• Prejudiced employer: hires men, pays women less

– Result of discrimination: women earn less than they would earn in absence of discrimination.

• Non-discriminatory employers randomly hire men and women, paying the same wage– Firms hiring women have lower labor costs then firms

hiring just men– so firms with women have higher profits– non discriminating employers drive discriminating

employers out of business

• Competition should eliminate discrimination• So why doesn’t discrimination disappear?

– Not enough non-discriminating firms– Imperfect competition – no free firm entry– Imperfect information about prospective workers

Becker’s Theory of Discrimination

• Equal Pay Act of 1963 requires that men and women doing the same job to be paid the same.– Firms could avoid the law’s requirements conducting

employment discrimination (e.g., not hiring females for jobs held by males) .

• Civil Rights Act of 1964 outlaws both wage discrimination and employment discrimination.– Applies to race, gender, color, religion, and national origin.– Applies to private employers, labor unions, and

governments.• Firms with more than $50,000 of government

contracts must develop affirmative-action programs. – Firms must a develop plan to hire more women and

minorities if the firm has a smaller of proportion of women and minorities than in the available labor force.

– These programs have been under legal and political attack.

Antidiscrimination Policies

To study the earnings gap: Regression analysis

• fit a linear relationship– Y = a + bX + u

• X, independent variable: education, age, gender, race, expreince

• Y, dependent variable: earnings• how does a change in X cause Y to change?• Y = a + bX + u• get data on Y, X

– multiple observations• use regression analysis to estimate a and b