Question

Answer according to the discrimination model. Assume women and men both have the same productivity.

1. Imagine a market in which women’s wages are on average 80% of men’s wages.

a. Graph the supply and the demand for female employees in this market assuming some are non-discriminating employers.

b. Imagine 50% are discriminating employers. Does this mean that women working with those employers make 60% of men’s wage and that women working with nondiscriminating employers make the same wage as men? Explain.

c. Explain and show in the graph what would happen with the average women’s wage, if more women start looking for a job.

d. Explain and show in the graph what would happen with the average women’s wage if the percentage of discriminating employers decreases.

e. Explain and show in the graph what would happen with the average women’s wage if the discriminating employers become more discriminating.

f. If 50% of the employers are discriminating employers, does it mean that women are necessarily going to have a lower wage than men? Explain.

g. Which employers (discriminating employers or non-discriminating employers) will hire more women than men? Why?

h. What should happen in this market in the long run if it is a competitive market? Explain.

Answer 1

a. Below diagram shows the supply and demand for female employees in the market with some non-discriminating employers. the horizantal portion of the demand curve shows the non -discriminating employers while the downward sloping portion shows the discriminating employers. L_w is the total nunmber of female employees. Non discriminating employers pay both male and female equally i.e. W_m, while discriminating employers pay wages W_w to the female eployees.

b. Let us suppose number of female employees working under dicriminating employers be x. Therefore, number of female employees working under non-discriminating employers will be (L_w-x).

Wage rate for x employees is W_w, while wage rate for (L_w-x) is W_m.

Given that the women's wages are on an average 80% of men's wages, and 50% of employers are discriminating means x = 1/2 L and thus (L_w-x)= 1/2L

Therefore,we get :

(1/2 L * W_w + 1/2 L * W_m) / L = 0.8 W_m

W_w = 0.6 W_m

This mean that women working with discriminating employers make 60% of men’s wage and that women working with nondiscriminating employers make the same wage as men.

c. When more women start looking for job then, L_w increases to L¹_w and the dicriminatory wage for female workers reduces from W_w to W¹_w. This leads to a reduction in the average wage rate for female employees.

d. When the % of discriminating employees decease, non discriminating employees increase thus, the horizontal portion of demand curve increases in length and the slope of the downward portion reduces. this decreases the differential wage gap between female and male employees and thus the average wage rate of female employees increases.

e. When the discriminating employees become more discriminating then the slope of the downward portion of demand curve increases andit becomes more steep thus reducing the discriminating wage rate to W¹_w from W_{w .}This reduces the average wage rate of female employees.

f. if 50% of employers are discriminating ,then it necessarily means that women are going to have wages less than men until and unless all female employees are hired by non-discriminating employers. But this is not a realistic situation, as some female employees will be employed by discriminators ,who will pay less wages to female ,thus, reducing their average wage rate as compared to men.

g. For maximising profits , discriminators will employ more female employees as they will pay less wages to females as compared to the non discriminators,thus reducing their wage bill and increasing their profits.

h. If it is a competitive market then in the long run, non discriminators will crowd out the discriminators as they would hire more and more women until the wages for men and women become equal. This action will reduce the number of discriminators in the market. there will be some discriminators but they will be paying equal market wage rate to both men and women.