Question

1. Explain the factors that lead to statistical discrimination.

2. Explain the taste for discrimination model.

3. Use simple supply and demand analysis to explain the impact of occupational segregation or “crowding” on the relative wage rates of men and women.

Answer 1

Explain the factors that lead to statistical discrimination.

Statisical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases ( e.g., insurance markets), it is illegal and/or controversial in others (o.g.,recial profiling and gender-based labor market discrimination)."First moment" statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average , than male workes. "second moment" disrimination occurs when risk averse, employers offer female workers lower wages based not on lower average productivity but on a higher wariance in their productivity. Empirical work on statistical discrimination is hampered by the difficulty of obatining suitable data from naturally-occurring labor markets.This paper reports results from controlled laboratory experiments designed to study second moment statistical discrimination in a lobor market setting.Since decision-markers may not veiw risk in the same way as economists or statisticians (i.e., risk =variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employes.Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion in our full samle (though differences between male and female employers can be noted). If one can transfer these results outside of the laboratory, they indicate that labor market discrimination based only on first moment discrimination is biased downward. The public policy implication is that efforts and legislatin aimed at reducing discriminatio of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discriminations.

Explain the tast for discrimination model.

In term of demand, negative discrimination will lead to employers downgrading the expected value of employment of a particular group, and hence reducing the expected MRP, and shifting the demand curve to the left. The effect of this is to reduce the wage rate of the group discriminated against, as well as reducing employment prospects. Also, some workers who fear they may be discrimination against may not seek employment in those firms that they perceive practice discrimination. Hence, they do not supply their labour to those types of firms. This shifts the potential supply curve to the left, and raises the relative wage rate of the favoured group.Despite various Acts of Parliament,including the Equal pay Act(1970), and Employment protection Act (1975), consideration pay differences exist -though not all can be attributed to discrimination.

There are several polocies that could be used to help reduce discrimination. A report by the OECD suggested the following:

Long-term investment in education and training to prepare people better for the labour market.

Structuralreforms to promote stronger and more sustainable economic growth which can boost demand for workers, creating a more competitive environment that forces managers to drop discriminatory hiring and promotion practices.

Specific anti-discrimination legislation backed up by effective enforcement. Enforcement agencies should be empowered, even in the absence of individual complaints, to investigate companies and sanction employers when they find evidence of discrimination.