Chapter 27
The Economics of Race and
Sex Discrimination
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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
27-3
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
Income from all sources
Average weekly wages
for full-time
employment
Mean net worth (singles)
Covered by a pension
Poverty rate
Percentage of singlefiling bankruptcies
Women
$32,265
$20,014
$798
$635
$120,718
$102,718
51%
46%
11.0%
13.6%
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 Discrimination
doing something that is not necessarily
discriminatory on its face but that impacts
some groups more negatively than others
• Rational or Statistical Discrimination
discrimination 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 1/3/1960
DOORMAN-WHITE age 30 to 45
married...Neat in appearance and at least
5'11" or taller in height
New York Times 1/3/1960
COOK, housekeeper, Negro preferred,
experience essential, prominent family,
permanent position, high salary
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Modeling Labor Market Discrimination
SD
Wage
SND Wage
SND
SD
wwhite
wND
wblack
D
Labor market for jobs
only whites are allowed
do.
D
Labor market for jobs that
blacks who work must do.
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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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Why Women Make Less than Men
(continued)
• Flexible Employment
– Women, more than men, tend to choose jobs
that allow them to deal with her children’s
activities and illnesses.
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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
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