Chapter 27The Economics of Race and Sex Discrimination

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter Outline

• The Economic Status of Women and Minorities

• Why Women Earn Less than Men • What Is Discrimination?• Modeling Discrimination• Affirmative Action

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You Are Here

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Economic Status of Women• Labor-force participation rate

– Labor force participation rate: the percentage of people in a particular category who are over 16 and working

– After adjusting the labor-force participation rate to reflect the fact that as the U.S. population has been ageing the real impact is

• Men – have 61% more income than women, – make 25% more in wages for full-time employment, – are 11% (5 percentage points) more likely to be

covered by pensions, – are less likely to be in poverty.

• Bankruptcies of single women are increasing substantially.

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Economic Differences between Men and Women

Men Women

Income from all sources $32,265 $20,014

Average weekly wages for full-time employment

$798 $635

Mean net worth (singles) $120,718 $102,718

Covered by a pension 51% 46%

Poverty rate 11.0% 13.6%

Percentage of single-filing bankruptcies

46% 54%

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Ratio of Women’s Income to Men’s

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Difference in Earnings by Occupation

Occupation Women’s Earning’s as a Percent of Men’s

Physicians 86%

Lawyers 80%

Managers/Executives 71%

Teachers (elementary) 88%

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Social and Economic Conditions for

African-Americans

• African-American family income is rising.• The relative position of African-American

family income to white family income has risen slowly.

• Rates of poverty and unemployment are much higher for African-Americans than whites.

• More African-American men are in prison than in college.

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Median Family Income by Race

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Black/White Median Family Income

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What is Discrimination• Disparate Treatment Discrimination

treating two otherwise equal people differently on the basis of race

• Adverse Impact Discriminationdoing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others

• Rational or Statistical Discriminationdiscrimination that is based on sound statistical evidence and is consistent with profit maximization

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Measuring and Detecting Discrimination

• Regression techniques– Statistical methods which seek to

determine if the differences in treatment for whites and blacks could have happened by random chance.

• Auditing techniques– Sending paid actors into a situation to

determine if people with identical economic characteristics are treated differently based on race.

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Labor Market Discrimination in the Past

Chicago Tribune 1/3/1960DOORMAN-WHITE age 30 to 45married...Neat in appearance and at least5'11" or taller in height

New York Times 1/3/1960COOK, housekeeper, Negro preferred,experience essential, prominent family,permanent position, high salary

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Modeling Labor Market Discrimination

Labor market for jobsonly whites are allowed do.

Wage SND

D

wND

Labor market for jobs that blacks who work must do.

Wage SND

D

SD

SD

wwhite

wblack

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Why Competition Would Eliminate

Discriminatory Pay• Businesses that hired only whites at the

higher wage would have higher costs than businesses that did not discriminate.

• Businesses that did not discriminate could lower their prices and take the market share of those firms that did discriminate.

• As this happened firms would see that discrimination was not consistent with maximizing profits and would stop discriminating.

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Why Competition Would Not Necessarily Eliminate

Discrimination• In industries where there is economic profit,

firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks.

• In industries in which the customer chooses which business to patronize based on race, firms may be willing to discriminate because their profit maximizing interest and discrimination are consistent.

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Why Women Make Less than Men

• Pregnancy– Loss of time in the field and

intermittent absence can put women at a economic disadvantage. (Many times this difference in treatment is against the law.)

• Stay-at-home Moms– 98% of stay-at-home parents are

women leaving them out of the job market for extended periods of time.

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Why Women Make Less than Men

(continued)• Different Professions

– Teachers (81%)– Nurses (90%)– Social Workers (68%)– Day Care workers (94%)– Secretaries (97%)

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• Flexible Employment– Women, more than men, tend to

choose jobs that allow them to deal with her children’s activities and illnesses.

Why Women Make Less than Men

(continued)

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Sociology vs. Economics

• Economic Explanation for pay differences– People make choices and one of the

consequences of those choices is their earning capacity.

– If women choose • professions that do not pay well, • to have and stay home with children • jobs that allow them to deal with their children

– they will make less money.

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Sociology vs. Economics(continued)

• Sociological Explanation for pay differences– Women are socialized

• to pick certain professions• into being the parent to stay home• into being the parent that sacrifices

career for family

– which causes them to be paid less.

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Consumption Market Discrimination

• Blacks pay more for cars.• Blacks are shown fewer homes and

those homes are in already integrated neighborhoods.

• Blacks are more likely to be turned down for a mortgage loan.

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Affirmative Action

• Affirmative Action : any policy that is taken to speed up the process of achieving equality

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History of Affirmative Action

But freedom is not enough. You do not wipe away the scars of centuries by saying: Now you are free to go where you want, do as you desire, and choose the leaders you please.You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, “You are free to compete with all the others,” and still justly believe that you have been completely fair.Thus it is not enough to just open the gates of opportunity. All our citizens must have the ability to walk through those gates.

Lyndon Johnson, 1965 at Howard University

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More History

• Nixon’s Executive order 11246 mandated affirmative action in contracts with the federal government.

• Set-asides were created so that 10% of all federal highway contracts were “set aside” for minority owned contractors.

• Various Supreme Court rulings have limited the scope with which affirmative action can be employed. It must now meet a high standard of “strict scrutiny.”

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The Civil Rights Act of 1964 vs. the California Civil Rights

Initiative• Civil Rights Act 1964

– The state shall not discriminate against any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.

• California Civil Rights Initiative– The state shall not discriminate against, or

grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.

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Gradations of Affirmative Action• An equal opportunity to apply

– Requires employers to advertise in minority-seen outlets .• Race as a tie-breaker

– Race may break a tie between equally situated candidates.

• Acceptance of all qualified minorities– Used most often in university admissions to selective

schools. A standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool.

• Guidelines – Targets are set for minority hiring and promotion and, if

they are not met, a justification must be given.• Quotas

– Strict percentages of minorities must be hired. This is generally unconstitutional unless ordered by a court to remedy past discrimination.

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The University of Michigan Case

• Undergraduate Admission System– Based on a point system that gave

points for academic achievement, race, etc.

– Found unconstitutional

• Graduate Admission System– Based on the desire to achieve a

critical mass of minority students– Found constitutional

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Myths of Affirmative Action Roland Fryer and Glenn

Loury • Myth #1 Affirmative Action Can Involve

Goals and Timetables while Avoiding Quotas

• Myth #2 Color-Blind Policies Offer an Efficient Substitute for Color-Sighted Affirmative Action.

• Myth #3 Affirmative Action Undercuts the Incentive to Invest in Yourself

• Myth #4 Equal Opportunity is Enough to Ensure Racial Equality

• Myth #5 The Earlier in the Better• Myth #6 Many Nonminority Citizens are

Directly Affected by Affirmative Action • Myth #7 Affirmative Action Always Helps

its Beneficiaries