CHAPTER 12

Gender, Race, and Ethnicity in the Labor Market

SUMMARY

The discussion in Chapter 11 of the complex relationship between pay and productivity
drew on a wide array of material from Chapters 5, 8, 9, and 10. In so doing, it
significantly expanded the analytical framework available for thinking critically about
labor issues. It is this analytical framework that allows one to strip away the rhetoric that
often surrounds highly controversial labor market issues and see more clearly the
consequences of various labor market practices and policies. Perhaps no topic is more
controversial than that taken up in Chapter 12.

Issues related to gender, race, and ethnicity have come to play a more prominent role in
labor market analysis because of the tremendous demographic changes that have taken
place in the American labor force over the last 30 years. If the trends continue, white
workers, 81 percent of the labor force in 1981, will comprise less than 57 percent of the
civilian labor force by the year 2028. The percentage of women in the work force
continues to rise, while the percentage of Hispanic and Asian workers is growing so
rapidly that the two groups are projected to comprise over 20 percent of the labor force
by the year 2028, up from less than 9 percent in 1982. For the most part, the
demographic groups growing most rapidly earn significantly less than white males. What
is the source of these earnings differences? How much of the difference is attributable to
discrimination? These are the questions taken up in the first part of Chapter 12.

Although the difference in earnings between men and women has been narrowing
gradually, in 2000 full-time white women workers over the age of 18 still earned only 67
percent of what white males earned on average. The ratio is even smaller if just older
workers are compared, but somewhat larger if younger and more educated workers are
compared. Some of the difference is clearly due to the different occupational
distributions of men and women, with women being more prevalent in traditionally
lower-paying occupations. But women tend to be paid less then men even in the same

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
occupation. One reason may be that women, on average, work fewer hours than men,
and so men’s higher wages may be a compensating differential for longer hours of work.
Women also tend to have less work experience, and that experience may be interrupted
by time out of the labor force. Thus they are less likely to be promoted.

However, even when differences in occupation, age, experience, and hours of work are
considered, there is still unexplained variation between the earnings of women and men.
It may be that the differences reflect something about the preferences of men and women,
or other factors, such as differences in the productive characteristics with which the
groups enter the labor market, pre-market differences. Or there may be labor market
discrimination, differences in the way that the groups are treated within the labor
market.

Wage discrimination exists when one group is paid less than another, given the same
experience, working conditions, and productive potential. Occupational discrimination
exists when members of one group are pushed into lower-paying jobs or positions of less
responsibility by employers, again given the same experience and productive potential.
Occupational segregation when the distribution of occupations within one group is very
different from the distribution in another. However, that may reflect preferences and not
discrimination, unless occupational choices are directly limited. But preferences
themselves may be the result of premarket discrimination, different societal treatments
that may push one group toward certain pursuits and interests long before they actually
enter the labor market.

One measure of the occupational differences between men and women is the index of
dissimilarity. It is defined as the percentage of women (or men) that would have to
change occupations in order for women to be distributed among occupations in the same
proportions as men. Formally, the index (S) is computed using the summation formula
N
1
S= ∑ |M i−F i|,
2 i=1

where Mi is the percentage of the total population of male workers in occupation i, F i is

the percentage of the total population of female workers in occupation i, and N is the
number of occupations. If men and women were distributed identically, the index would
equal zero, while completely segregated occupations would have an index of 100.

The index of dissimilarity, which was 68 in 1970, has declined to 53 in 1990, which
indicates that occupational segregation has decreased somewhat, though studies still find
that there is a significant effect on the wages of women.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market

Example: Measuring Wage Discrimination

Consider a labor market where a worker’s wage is a function of his or her work
experience (EXP) and occupation (OC). Let the occupational variable OC take on a
value of 1 if the person works in the “high-paying” sector of the labor market and 0
otherwise. Suppose the relationships between wages, experience, and occupation for
males (M) and females (F) can be represented by the equations

WM = 4 + 2 OC + 0.75 EXP,

WF = 4 + 2 OC + 0.5 EXP.

Assuming women are employed only in the low-paying sector of the economy, these
equations can be rewritten as
WM = 6 + 0.75 E,

WF = 4 + 0.5 E.

These equations are represented by lines M1 and F0 in Figure 12-1.

Figure 12-1.

If EXP averages 12 years for men and only 8 years for women, then the average wages
for each group will be
WM = 6 + 0.75(12) = 15,

WF = 4 + 0.5(8) = 8.

These wage levels are shown as points a and b in Figure 12-1. Note how the different
productive characteristics (different occupations and experience levels), along with the
payoffs to those characteristics, come together to determine the wages paid to each group.
In this example, the average woman earns only 53 percent of what the average man does.

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market

To measure the degree of wage discrimination, occupation and the level of experience
must be held constant so that just the differences in labor market payoffs can be observed.
In this case, we calculate what women would earn if they were employed in the same
jobs and had the same experience levels as men. Substituting OC = 1 and EXP = 12 into
the female wage equation yields
WF = 4 + 2(1)+ 0.5(12) = 12.

This is point c in Figure 12-1 (line F1 represents the returns to experience for women
assuming they were employed in the same jobs as men). After adjusting for the differences
in occupation and experience, note that women still earn only 80 percent of what the average
man does. The 20 percent difference in wages (the percentage difference between points b
and c), which is due to differences in the payoff to experience, is a measure of the degree of
wage discrimination. Notice that wage discrimination accounts for less than half of the 47
percent gap in wages that is actually observed.

If the different employment patterns of men and women are the result of occupational
segregation, the total amount of current labor market discrimination is found by just
controlling for the differences in experience and not the differences in occupation. Given the
occupations of men and women, we calculate what women would earn if they had the same
experience levels as men. Substituting EXP = 12 into the female wage equation yields

WF = 4 + 0.5(12) = 10.

This is point d in Figure 21-1. Note that at point d, women earn only 67 percent of what
men do. The 33 percent difference between points b and d is a measure of the current
labor market discrimination. The difference between points c and d ($2 or 13 percent of
the men’s wage) represents the effects of occupational segregation. Note that the current
labor market discrimination in this example can be decomposed into approximately 20
percent wage discrimination and 13 percent occupational segregation. Empirical studies
using cross-section data suggest current labor market discrimination in the range of 15
percent to 20 percent. Recall that the total wage gap was 34 percent in 1993.

An ideal study of wage discrimination would of course include more than just experience
and occupation as a measure of the worker’s productive characteristics. For example,
education and ability should also be included. But even if all measured productive
characteristics were accounted for, some unmeasurable differences may still exist. These
unmeasurable characteristics suggest that the estimate of the female to male wage ratio
computed after controlling for all measured productive characteristics should be
interpreted as an upper bound on the degree of wage discrimination.

In contrast, if past wage discrimination has reduced the incentive of women to make
human capital investments, some of the differences in productive characteristics

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
(premarket differences) may also reflect discrimination. Therefore, while the 33 percent
gap between male and female earnings in the above example might be a good measure of
current labor market discrimination, a measure of the differential due to both current and
past discrimination would be larger since it would have to take into account the extent to
which pre-market differences in productive characteristics reflect past discrimination. It
is possible that pre-market choices are themselves significantly affected by labor market
discrimination. If, for example, women believe that entry to some professions is more
difficult due to labor market discrimination, they may avoid those occupations, and then
occupational differences do not solely represent a difference in preferences between men
and women.

However, it is frequently the case that data cannot be obtained on all of the pre-market
variables that have an impact on wages, and thus it is possible that estimates of labor
market discrimination are overstated. If, for example, differences in employment patterns
represent voluntary differences in occupational choice instead of occupational
segregation, the hypothetical 33 percent estimate in the above example would overstate
the degree of current labor market discrimination.

While bearing in mind the limitations of such estimation, a variety of studies have found
that while differences in labor market experience explain much of the gender gap in
earnings, but that labor market discrimination could explain a small but significant
portion of the gap.

The basic framework for analyzing earnings differences between men and women also
applies when analyzing differences between blacks and whites, as well as differences
between whites and various ethnic groups. The wage gap between white and black men
(67 percent in 2003) is similar to that between men and women overall. Where blacks
continue to differ most from whites, however, is in their unemployment and participation
rates. For black men, participation rates are consistently lower than for white men, and
unemployment rates are higher. There is also evidence that black males suffer
disproportionately in recessions, suggesting that they are last hired and first fired.
Participation rates for black women are higher than rates for white women, but the
unemployment rate for black women again exceeds the rate for white women.

Studies measuring occupational segregation have found about half the dissimilarity found
between men and women, but studies of wage discrimination have found about an 11%
differential between the earnings of black and white men, all other things equal. Again,
this may be due to unmeasured productive characteristics. One characteristic that is
usually unmeasured is cognitive achievement. Scores on the Armed Forces Qualification
test show lower levels of cognitive achievement for black Americans, which may be
associated with poorer-quality schooling and effects of poverty. This difference alone
may explain most of the wage differential.

Applying the wage discrimination methodology to data on other ethnic groups in the
United States shows relatively higher earnings for white, Asian, and European ethnic

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
groups, and lower earnings for Native American and Hispanic workers. Studies on
Hispanic residents reveals that their earnings remain 3 percent to 6 percent below those of
non-Hispanic whites after controlling for language proficiency and other productive
characteristics.

Assuming that at least a significant portion of the unexplained earnings gaps that exist for
women, blacks, and some ethic groups is attributable to current labor market
discrimination, what is the source of the discrimination? What is the mechanism by
which the discrimination affects labor market outcomes? These are the questions taken up
in the second part of Chapter 12.

One possible source of discrimination is personal prejudice, which can be exhibited by

employers, customers, or fellow employees. In the case of employer prejudice, the
discrimination can be modeled as a shifting down of the marginal product curve
pertaining to a particular group of workers as employers subjectively devalue their
productivity. This downward shift leads to a reduction in employment opportunities
and/or real wages for the group. For the market as a whole the size of the wage gap is
ultimately driven by the number of prejudiced employers relative to the supply of the
group’s workers and the intensity of the discriminatory preferences. The subjective
devaluation of the group’s productivity also lowers profits for the employer. This
suggests that prejudiced employers will not survive in a competitive market. Thus,
employer prejudice seems like a plausible source of discrimination only if the firms are
insulated from competition (e.g., by being in a regulated industry). Similarly, since
discrimination based on customer or employee prejudice can cause a firm’s costs to
increase, such discrimination is likely to persist only if the firm finds that eliminating the
discrimination is even more costly than catering to it.

Another possible source of discrimination is the hiring and screening process. In this
process, firms try to evaluate an applicant’s productivity using observable personal
characteristics such as education, experience, and test scores. The problem is that while
these variables tend to be correlated with productivity, they are not perfect predictors of
it. Knowing this, firms sometimes supplement the information about personal
characteristics with group information. For example, if black high school graduates tend
to be less productive, on average, than whites because of differences in high school
quality, employers may give preference to white applicants when all other personal
characteristics are equal. Modifying individual data based on group characteristics is
called statistical discrimination. Although such discrimination need not stem from
malicious feelings towards any particular group, it can have the unfortunate side effect of
limiting employment opportunities or reducing wages paid to those who do not fit the
group profile. After all, even if schools in predominantly black neighborhoods are, on
average, inferior to predominantly white schools, there will likely still be blacks that
graduate from these schools who are at least as productive as any white applicant.
Ultimately, as members of a particular group become more dissimilar (e.g., the number of
excellent black schools increases) making judgments on the basis of group affiliation will
actually hinder the firm’s hiring process and lead to lower profits.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
Occupational crowding and dual labor market theories of discrimination use lack of
occupational mobility to explain wage differences between groups. The dual labor market
theory, for example, postulates the existence of a primary sector of high-wage and stable
jobs, and a secondary sector of undesirable jobs. Historically, women and minorities
have been employed in the secondary sector resulting in poor work histories that are then
used to block breakthroughs into the primary sector. Another theory explains wage
differences between different groups by pointing out that search costs will be higher for
workers subject to discrimination. These higher search costs, in turn, give employers a
greater degree of monopsony power over some groups, which is then translated to lower
wages for those groups. Another theory is that white employers collude in the hiring of
certain groups and so effectively become monopsonists. This position enables them to
dictate lower wages to women and certain minority groups.

While each theory that relies on noncompetitive forces to explain discrimination is in a

way consistent with the data on wages, each version also raises more questions than it
answers. For example, what caused women and minorities to be originally assigned to the
secondary sector of the labor market? Why do the employers paying higher wages in
male-dominated occupations not substitute less expensive female labor? How is the
collusion against women and minorities by millions of employers maintained when each
individual firm has an incentive to cheat on the agreement and hire members of the
disfavored group to substitute for more expensive white male labor?

While none of the theories of discrimination outlined above is completely satisfactory,

the discussion does suggest that discrimination cannot persist without imperfectly
competitive markets or high adjustment costs. Can government play a role in helping to
create an environment where discrimination can not persist? The third part of Chapter 12
reviews and analyzes public policy towards discrimination.

Employers are prohibited from discriminating with respect to compensation or employment

opportunities by Title VII of the Civil Rights Act of 1964. However, the term
discrimination means different things to different people, and it is ultimately up to the
courts to define discrimination. Unfortunately, the courts have not always provided
consistent answers. One definition of discrimination adopted by the courts has come to be
known as the disparate treatment standard. Under this definition, a violation of Title VII
occurs if individuals are intentionally paid different wages or denied certain employment
opportunities because of characteristics like gender, race, or ethnicity. An alternative
definition is known as the disparate impact standard. Under this definition, personnel
policies that treat everyone the same, but impact certain groups (e.g., women or minorities)
more than others, are illegal provided the policies do not relate directly to job performance
and serve a business necessity. Under a disparate impact definition, seemingly neutral
policies like word-of-mouth recruiting may be illegal since they can carry forward the
effects of past discrimination. Layoffs in order of reverse seniority, however, are permitted
under the law even though they may disadvantage women and minorities who tend to be
the newest hires

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
(perhaps because they were the victims of past discrimination). The disparate impact
standard has also given rise to efforts to replace the free market setting of wages with a
system of comparable worth pay in which workers are paid according to the skills,
responsibilities, and working conditions involved in any particular job. Such a system is
thought by some to help break down the effect of occupational segregation on wages,
though critics suggest the employment ramifications of deviating from market-determined
wages could harm many of those the system was intended to help.

Even under the disparate impact definition, Title VII is very clear in not requiring any party
to grant preferential treatment to any group to make up for labor market imbalances.
However, considerable tension exists between this principle and the affirmative action plans
required of most federal contractors by the Office of Federal Contract Compliance Programs.
Under an affirmative action plan, contractors must commit to a schedule for rapidly
overcoming any less-than-proportional representation of women and minorities in the various
levels of the firm. But what constitutes the proportional representation of women and
minorities? To answer this question requires knowledge of the number of women or
minorities that are available to the firm and what fraction of total available workers they
constitute. Guidelines for defining the pool of available workers are vague but require the
consideration of a number of factors. These factors include the geographic area from which
employees can reasonably commute, the population percentage of women and minorities, the
percentage that are actually in the labor force, the percentage that are unemployed, the
percentage that have the necessary skills, the number of promotable women and minorities
already in the firm, and the possibilities for training women and minorities in the necessary
skills. Once the percentage goal is set, the key question is whether that percentage applies to
new hires or whether the target group should constitute even a greater percentage of new
hires. Hiring at a rate just equal to the percentage in the pool of available workers means that
achieving the overall goal throughout the firm will be a slow process, whereas hiring women
and minorities in greater-than-proportionate numbers would seem to violate Title VII’s
prohibition against requiring preferential treatment. Although studies of the contract
compliance program show it has had little effect on raising the black-to-white earnings ratio,
evidence also suggests that all federal antidiscrimination efforts taken together may account
for up to one-third of the improvement in black-to-white earnings ratios that took place
between 1960 and 1975.

The appendix to Chapter 12 discusses a simple estimation method for making comparable
worth pay adjustments. Under the comparable worth system discussed in the appendix,
jobs that are at least 70 percent male or female are rated by outside consultants as to the
degree of know-how, problem-solving skills, and accountability the jobs require. These
ratings, along with a rating of working conditions, are summed to create a total score for
each job. Using the least squares regression technique discussed in Appendix 1A, the
wages earned by male workers are then regressed on the scores associated with each male
job. The estimated relationship between wages and scores is then used to predict the
wage that should accompany any score. These predictions can then be compared to the
wages earned in female jobs with the same overall score. Any gap that is observed can
then be closed through future pay adjustments.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market

REVIEW QUESTIONS

Choose the letter that represents the BEST response.

Defining and Measuring Labor Market Discrimination

1. Labor market discrimination towards women can be said to currently exist if

a. women, on average, are paid less than men for performing the same job.
b. men and women with identical productive characteristics are treated differently
in the labor market simply because of gender.
c. women tend to be employed in a different set of occupations than men.
d. all of the above.

2. One form of current labor market discrimination towards women is wage

discrimination. Which of the following factors must be controlled for before wage
discrimination can be identified?
a. working conditions
b. occupation
c. experience
d. all of the above

3. One form of current labor market discrimination towards women is occupational

segregation. This refers to a reduction in the relative wage of women caused by
restrictions on the types of occupations open to women. Which of the following factors
must be held constant before the effects of occupational segregation can be identified?
a. All productive characteristics except occupation
b. All productive characteristics including occupation
c. All productive characteristics except previous occupational training
d. All productive characteristics except previous work history

4. In the context of measuring gender discrimination, the term “premarket differences”

refers to
a. the gap between the average wages of men and women.
b. differences in the current productive characteristics of men and women.
c. the effects on women of past discrimination.
d. differences between men and women regarding the “price” each productive
characteristic brings in the labor market.

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
In answering questions 5-10, please refer to Figure 12-2 which assumes that the wage
workers receive is a function of their occupation and experience. Line M1 refers to the
relationship between the wage and experience for men who are employed exclusively in
the high-paying sector of the labor market. Line F0 refers to the relationship between the
wage and experience for women who are employed exclusively in the low-paying sector.
Line F1 refers to the relationship between the wage and experience for women if they
were employed in the same occupations as men. Assume women average 2 years of work
experience while men average 6 years.

Figure 12-2.

5. On average, how much will men’s wages exceed women’s?

a. $14
b. $10
c. $6
d. $4

6. How much of the gap between men’s and women’s wages could be attributed to
current labor market discrimination?
a. $16
b. $10
c. $6
d. $4

7. How much of the gap between men’s and women’s wages could be attributed to
current wage discrimination?
a. $12
b. $8
c. $6
d. $4

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
8. How much of the gap between men’s and women’s wages could be attributed to
occupational segregation?
a. $14
b. $12
c. $6
d. $4

9. The estimate of current labor market discrimination will be overstated if

a. there are unmeasurable productive characteristics that differ by gender.
b. occupational choice is the result of preferences formed before labor market
entry.
c. women have experienced wage discrimination in the past.
d. both a and b.

10. The index of occupational dissimilarity in the above example is 100 since the
occupations are completely segregated. Suppose instead that 10 percent of all female
workers were employed in occupation 1 and 90 percent in occupation 2, while 75 percent
of male workers were employed in occupation 1 and 25 percent in occupation 2. The
index of dissimilarity for this labor market would be
a. 30.
b. 35.
c. 65.
d. 80.

Theories of Market Discrimination

11. Assume all demographic groups have the same productive characteristics. An
employer who is prejudiced against blacks will
a. hire the same number of blacks and whites provided the wage paid to blacks is
low enough.
b. hire fewer blacks than whites.
c. never hire blacks.
d. either a or b.

12. Assume all demographic groups have the same productive characteristics. An
employer who discriminates against blacks because of personal prejudice will
a. earn lower profits than employers who do not discriminate.
b. will be less productive than those that do not discriminate.
c. earn higher profits through the exploitation of blacks.
d. have to charge higher prices.

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
13. Which of the following pieces of evidence would indicate that the source of
discrimination against blacks was customer prejudice?
a. The existence of segregated workplaces in occupations with high customer
contact
b. Differences in the average earnings of self-employed black and white workers
after controlling for all premarket differences
c. Blacks who hold customer contact positions are found to be more qualified than
whites holding those same positions
d. All of the above

14. If the source of discrimination against blacks is employee prejudice, one would
predict that
a. whites with the same productive characteristics would be paid more if they
worked in integrated workplaces.
b. firms that do not cater to discriminating employees would be more profitable
than those that do.
c. there would be wide variations in the earnings of black employees.
d. both a and b.

15. The likelihood of a firm using statistical discrimination in its hiring and screening of
women decreases as
a. the monopoly power of the firm decreases.
b. prejudice against women decreases.
c. women become less similar in their productive characteristics.
d. all of the above.

16. The major problem with the occupational crowding and dual labor market theories of
discrimination is that
a. they are based on the notion of noncompeting groups.
b. they do not explain how the noncompeting groups were initially formed.
c. they are not completely consistent with the empirical facts of labor market
discrimination.
d. they suggest discrimination is profitable for the firms.

17. Which of the following is a true statement concerning the collusive action model of
discrimination?
a. The firms conspire to create prejudice.
b. Discrimination increases profits for all the firms.
c. Individual firms will be very reluctant to break the agreement.
d. All of the above.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
Federal Programs to End Discrimination

18. Assuming the courts follow a disparate treatment definition of discrimination, which of
the following personnel practices would be illegal under Title VII of the Civil Rights Act?
a. using seniority to allocate promotions and layoffs
b. comparable worth pay adjustments
c. deliberately granting preference in the hiring process to groups that are
underrepresented in the workforce relative to their population percentages
d. all of the above

19. Assuming the courts follow a disparate impact definition of discrimination, which of the
following personnel practices would be illegal under Title VII of the Civil Rights Act?
a. Using seniority to allocate promotions and layoffs.
b. Comparable worth pay adjustments.
c. Job related tests and standards that serve a business necessity.
d. Word-of-mouth recruiting.

20. Affirmative action planning is required by the Office of Federal Contract Compliance
Programs for most government contractors. It requires firms to commit to a schedule of
hiring and promotion for certain demographic groups that is based on their percentage in
the pool of “available” workers. Which of the following is not a factor that firms must
take into account when deciding which workers are available for hire?
a. the population of the targeted group within the area of reasonable commuting
distance
b. the unemployment rate of the targeted group within the area of reasonable
commuting distance
c. the interest people from the targeted group have in working at the firm
d. the investment in training the firm is able to make

Estimating “Comparable Worth” Earnings Gaps

21. Which of the following is not a factor that is typically used in scoring jobs under a
comparable worth pay system?
a. working conditions
b. problem-solving skills
c. required training
d. the worker’s previous work history

22. Assume the relationship between monthly earnings and job evaluation scores (S) for
male workers has been estimated by least squares regression to be

Earnings = 1000 + 5S.

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
If a woman works at a job where S = 100 and has monthly earnings of $1,200, what is the
size of the comparable worth earnings gap expressed in percentage terms?
a. 5 percent
b. 20 percent
c. 25 percent
d. 80 percent

PROBLEMS

Measuring Labor Market Discrimination

23. Consider a labor market where a worker’s wage is a function of his or her years of
education past the compulsory level (ED), work experience (EXP), and occupation (OC).
Let the occupational variable OC take on a value of 1 if the person works in the “high-
paying” sector of the labor market and 0 otherwise. Suppose the relationships between
wages, education, experience and occupation for males (M) and females (F) can be
represented by the equations

WM = 3 + 0.5 ED + 0.6 EXP + OC,

WF = 3 + 0.4 ED + 0.5 EXP + OC.

Assume that, on average, ED = 4, and EXP = 10 for men, while for women the averages
are ED = 3 and EXP = 6. Also assume that women are only employed in the low-paying
sector of the labor market.

23a. Find the average wage of men and women. What is the ratio of women’s to men’s
wages? What is the gap between women’s and men’s wages in percentage terms?

23b. What wage would women earn if they had the same premarket characteristics as
men on average? What would be the ratio of women’s to men’s wages?

23c. Express the amount of current wage discrimination in percentage terms.

23d. Suppose that the differences in occupation do not reflect premarket choices but
occupational segregation. What is the most women could earn even if all other productive
characteristics were the same as men? What would be the ratio of women’s to men’s wages?

23e. Express the amount of current labor market discrimination in percentage terms.
Express the wage reduction due to occupational segregation in percentage terms.

23f. Is the estimate of current labor market discrimination likely to understate or overstate
the true impact of discrimination on labor market outcomes?

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
23g. An alternative way to compute the extent of wage discrimination would be to
determine what men would earn if they had the same premarket characteristics (including
occupation) as women. What would the ratio of women’s to men’s wages be under this
approach? Is the measure of wage discrimination in percentage terms greater or less than
the answer to 23c?

23h. An alternative way to see the effect of occupational segregation is to suppose that
the segregation is broken down so that half of all women now work in the high-paying
sector and half of all men work in the low-paying sector. Assuming this does not change
the payoffs to education and experience that men and women receive in the labor market,
compute the average wages that would be observed for men and women. Find the ratio of
women’s to men’s wages.

Measuring the Degree of Occupational Segregation

24. Consider Table 12-1 which shows the total employment in each of four occupations
as well as the percentage of each occupation that is staffed by male and female workers.

24a. Construct a table showing the actual number of male and female workers in each
occupation.

24b. Construct a table showing the percentage of total male and female workers that are
employed in each occupation.

24c. Compute the index of occupational dissimilarity.

Table 12-1.

Occupation % Male % Female Total Employment

A 20% 80% 50
B 40% 60% 50
C 80% 20% 50
D 60% 40% 50
200

Changes in the Employment Ratio of Black Men

25. The employment to population ratio (ER) for any particular group can be expressed
as a function of the group’s labor force participation rate (LFPR) and unemployment rate
(UR) using the formula
ER = LFPR(1-UR).

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
According to data presented in Table 12.5 of the text, the employment ratio of black men
was 71.9 percent in 1970. By 1997 the ratio had fallen to 61.4 percent because of an
increase in the group’s unemployment rate from 7.3 percent to 10.2 percent and a
decrease in its labor force participation rate from 77.6 percent to 68.3 percent. If the labor
force participation rate of black men could be increased to its 1970 level, how high could
the unemployment rate be without the group’s employment ratio falling further?

The Effects of Employer Prejudice

26. Consider a firm that hires both white and black workers. Each group of workers has
an identical marginal product curve given by the equation

MPL = 25 - 0.5L.

Suppose that the going real wage rate for each group of workers is 15.

26a. What is the optimal level of employment for each group of workers? How much
profit does the employment of the black workers add to the firm?

*26b. Now suppose that the employer develops a prejudice against the black workers. This
prejudice causes the employer to subjectively devalue the productivity of black workers. The
result is that at any given level of employment, the employer will act as if the marginal
product of black workers is 5 units less than it really is. Assuming the going wage rate for
each group remains the same, what is the optimal level of employment for each group of
workers? How much profit does the employment of black workers add to the firm now?

*26c. How low would the wage of black workers have to fall to keep the employment of
black workers the same as it was originally? How much profit does the employment of
black workers add to the firm now?

*26d. Given the new wage of black workers, what employment level would a non-
prejudiced employer set? How much profit would this employment of black workers add
to the firm?

Determinants of the Relative Wage Between Men and Women

27. Figure 12-3 shows the market demand curve for women expressed in terms of the
ratio of women’s to men’s wages.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market

Figure 12-3.

The figure assumes that there are enough nondiscriminating employers so that up to
5,000 women can be hired at a relative wage of 1. After that point, women will be hired
by discriminating employers who demand a decrease in the relative wage to induce them
to hire women. Assume that for every $1 decrease in the relative wage, the quantity of
women demanded increases by 10,000. Therefore, if the relative wage fell to zero, 15,000
women would be hired. This combination of discriminating and non-discriminating
employers leads to the market demand curve given by the line abc. The supply curve of
women is represented by the line labeled S.

27a. What is the market clearing value of the relative wage? How many women will be
employed at this wage?

27b. Now suppose that the number of nondiscriminating employers increases in such a
way that the number of women who can be hired at a relative wage of 1 increases to
10,000. At the same time, however, suppose that the discriminatory preferences of the
other employers worsens so that for every $1 decrease in the relative wage, the quantity
of women demanded increases by only 5,000. What will happen to the relative wage and
employment of women?

Estimating “Comparable Worth” Earnings Gaps (Appendix 12A)

28. Assume the relationship between yearly earnings (Y) and job evaluation scores (S)
for male workers has been estimated by least squares regression to be

Y = 20000 + 50 S.

Suppose a woman works at a job where S = 600 and earns a salary of $40,000.

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
28a. What is the size of the comparable worth earnings gap expressed in dollar terms?

28b. What is the size of the comparable worth earnings gap expressed as a percentage of
the wage earned by men?

APPLICATIONS

Measuring Discrimination

29. Data presented in Table 12.6 of the text suggest that men of Russian ancestry earn 57
percent more than the U.S. average. Does this mean that there is no discrimination
against Russians in the United States? If not, how could such discrimination be
measured?

Effects of Unmeasurable Characteristics on Estimates of Discrimination

30. Consider a labor market where a worker’s wage is a function of his or her years of
work experience (EXP), occupation (OC), and attitude towards making money (Z). Let
the occupational variable OC take on a value of 1 if the person works in the “high-
paying” sector of the labor market and 0 otherwise. Similarly, the variable Z takes on a
value of 1 if making money is high priority for the person, and 0 otherwise. Suppose the
relationships between wages, experience, occupation, and attitude for males (M) and
females (F) can be represented by the equations

WM = 8 + 0.75 EXP + 2 OC + Z,

WF = 8 + 0.5 EXP + 2 OC + Z.

Assume that, on average, EXP = 12 for men and 8 for women, and that women are only
employed in the low-paying sector of the labor market. Also suppose that men tend to
place a high priority on making money while women do not.

30a. Find the average wage of men and women. What is the ratio of women’s to men’s
wages? What is the gap between women’s and men’s wages in percentage terms?

30b. What wage would women earn if they had the same premarket characteristics as
men on average? What would be the ratio of women’s to men’s wages?

30c. Express the amount of current wage discrimination in percentage terms.

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 Chapter 12: Gender, Race, and Ethnicity in the Labor Market
30d. In general, attitudes about making money may be very difficult to observe or
measure. Find the wage that women would earn if all productive characteristics except Z,
were the same as men on average? What would be the ratio of women’s to men’s wages?

30e. What would be the estimate of current wage discrimination in percentage terms
assuming Z is unmeasurable?

Social Losses from Occupational Segregation

31. Consider an economy with three sectors of employment. Table 12-2 shows the
relationship between employment, total output, and the marginal product of labor in each
sector. Suppose there are 6 male workers and 6 female workers in this economy. Due to
occupational segregation, all 6 women work in sector A, while 3 of the men work in
sector B and 3 men work in sector C.

31a. What is the real wage paid in each sector under occupational segregation?

31b. How much total output is produced given the segregated distribution of labor?

31c. Suppose discrimination in employment is eliminated and so one women flows from
sector C to sector A, and another women flows from sector C to sector A. What would be
the real wage paid in each sector?

31d. How much total output is produced under the new distribution of labor? Is the new
distribution of labor optimal?

Table 12-2
Employment Output Marginal Product

1 90 90
2 170 80
3 240 70
4 300 60
5 350 50
6 390 40
7 420 30
8 440 20
9 450 10
10 450 0

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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
Effects of Affirmative Action Planning

32. Consider a government contractor with 1,000 employees, 100 (10 percent) of whom
are black. Suppose that the yearly turnover rate at this firm is 20 percent and that the firm
annually replaces anyone who leaves with a new hire. Suppose that in the pool of
available workers, 20 percent are black.

32a. If this firm’s affirmative action plan calls for the proportion of new hires that are
black to be the same as their proportion in the pool of available workers, how many
blacks will be hired in the first year? How many blacks will leave the firm during the first
year?

32b. How many blacks will be employed at the firm one year into the affirmative action
plan? What percentage of the total employment does this represent?

32c. Find the percentage of black workers at the firm 5 years into the affirmative action plan.

32d. Suppose the ultimate goal under the affirmative action plan is a workforce that is 20
percent black. Would an increase in the turnover rate increase or decrease the number of
years that it would take to achieve this goal?

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