How Do Economists Think About
and Study Discrimination?
David Neumark
1
Why do economists study discrimination?
 Motivated by persistent differences between
economic outcomes for different groups
– Wage, employment, and unemployment
differences by race
– Wage and employment differences by sex
– Longer unemployment durations of older workers
2
Example of disparities in economic outcomes:
race differences in unemployment
 Go to http://www.bls.gov/cps/home.htm
– Click on “Most Requested Statistics”
– Select “Labor Force Statistics from the Current Population Survey”
– Select “Unemployment Rate – White” and “Unemployment Rate – Black
or African American”
– For January 2008, we get the following
Unemployment rate
Black men,
aged 16+
White men,
aged 16+
9.2%
4.4%
3
Example of disparities in economic outcomes:
sex differences in earnings
 Go to http://www.bls.gov/cps/home.htm
– Click on “Most Requested Statistics”
– Select “Weekly and hourly earnings data from the Current Population
Survey” Select “Median wkly earnings, Emp FT, Wage & sal wrkrs,
White, Men” and “Median wkly earnings, Emp FT, Wage & sal wrkrs,
White, Women”
– For 4th quarter of 2007, we get the following
Median weekly earnings
White women
White men
$632
$800
4
Other examples of disparities in economic
outcomes
 From same website, with further exploration, can find the following
Black men
White men
Median weekly earnings
(full-time, Q4: 2007)
$599
$800
Employment/population
ratio (Jan. 2008)
60.8%
70.6%
White women
White men
56.7%
70.6%
Men aged 5564
Men aged
25-34
23.4 weeks
16.4 weeks
Employment/population
ratio (Jan. 2008)
Mean unemployment
duration (2007)
5
Differences in economic outcomes are impetus
for broad research agenda on discrimination
 These empirical regularities lead to goal of understanding
contribution of discrimination to these differences
– Definition of “discrimination”
• People rewarded differently based on demographic
characteristics independent of their actual productivity
– Helps parse differences into those driven by treatment in
labor market and those driven by pre-market factors
• This, in turn, tells us where policies can most effectively
intervene to try to reduce differences in economic
outcomes
6
Numerous policy questions also arise
 Of course policy questions go quite a bit deeper
– If there is discrimination, then what is the
appropriate policy response?
– Have the policies in place reduced discrimination,
and do they continue to do so? In what ways do
they fail to be effective?
– Do they create other problems or even lead to
unintended consequences and harm the groups
they are trying to help?
7
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
8
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
9
“Workhorse” model: discrimination reflects
tastes
 Economics differs from other social sciences in not trying to
explain tastes, but to understand how they play out in markets
– Becker’s models
• “Employer discrimination”
– Employers dislike interacting with workers in some
group, and therefore act “as if” they are less
productive
• “Employee discrimination”
– Some workers dislike working with other workers, and
need to be compensated (like bad working condition)
• “Customer discrimination”
– Customers dislike interacting with workers from some
group, which effectively lowers their productivity
10
Implications of taste-based discrimination
models
 Employer discrimination
– Lower wages for groups suffering discrimination, controlling
(accounting) for actual productivity differences
– Lower employment/less hiring for groups suffering
discrimination, accounting for other differences
• Especially when we have laws regulating wages
– Competition might root out such discrimination, but only
under some conditions
 Employee discrimination: segregated workplaces, lower
employment/less hiring
 Customer discrimination: wage differences, lower
employment/less hiring
 Implications for how economists test for discrimination in labor
markets
11
Past discrimination and public policy response
 Little debate about whether there was discrimination in the past
– Jim Crow (into 1950s or 60s)
– Marriage bars through the 1950, extensive through early
1940s
• Most school districts barred married women from
teaching, and many large firms barred them from clerical
jobs
• Earlier prohibitions on training women as doctors or
lawyers
– Fun fact: Only outlawed in Japan in 1985
– Explicit age limits in job advertisements (1950s and 60s)
 Considerably more debate about how pervasive labor market
discrimination remains today, and more generally in post-Civil
Rights period
12
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
13
Overview of anti-discrimination policies (I)
 Equal Pay Act of 1963
– Requires equal pay for equal work
 Title VII of Civil Rights Act of 1964
– Made it illegal to use race, sex, ethnicity as basis
for labor market decisions regarding hiring, pay,
conditions, etc.
• Part of larger Act covering voters’ rights, public
accommodations, school desegregation, sex
discrimination in education
14
Overview of anti-discrimination policies (II)
 Affirmative Action
– Not established by legislation, but by Executive
Orders regulating companies doing business with
federal gov’t
– Affirmative Action in university admissions is
something schools have chosen to do; policy
question is whether to ban it
 Age Discrimination in Employment Act of 1967
– Lower profile, but likely to becoming very
important with population aging
15
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
16
Did anti-discrimination policies improve
outcomes for “protected groups”? (I)
 Most of this research focuses on effects of Title VII on black-white
differences (e.g., Freeman, 1973)
 Hard to determine effect of federal legislation from single time-series
– If we pass a law covering everyone, and then we see a change in
behavior, how do we know it was the effect‘64of the law rather than
something else changing
– Valuable lesson regarding drawing policy conclusions from data
17
Did anti-discrimination policies improve
outcomes for “protected groups”? (II)
 Research tends to conclude that federal laws led to a “break in the
trend” and faster improvement of blacks’ relative economic position
 Similar conclusion from other studies that try to better establish
“causal effects” of policy using richer variation
– Earlier state laws implemented at different times
– Interaction of state and federal laws that led to different
businesses becoming bound by anti-discrimination laws at
different times
 One important exception
– Laws protecting women focused on equal pay, which pushed up
cost without affording other protection
– “Unintended consequence” of lowering their employment
18
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
19
Is discrimination still with us?
 Motivated by alternative views
– Anti-discrimination policies have acted to remove
prejudices that led to discrimination in the past, so
policies are no longer needed
– Discrimination still exists and we still need
policies to root it out
• Even if laws effective, we wouldn’t expect laws
prohibiting discrimination to be completely
effective
20
Bulk of research literature focuses on wage
discrimination
 Building on Becker employer discrimination model,
is there evidence that blacks or women are paid less
“controlling” for productivity differences that might
also explain pay differences?
– What do we mean when we say “controlling for”?
• If higher paid group also has higher skills, then
in estimating labor market discrimination, we
want to net out the effect of higher skills
21
What do we mean by “controlling for”?
Wages
Avg. W
Avg. W
Prod.
Avg. S
Avg. S
22
What do we mean by “controlling for”?
Wages
Prod.
23
What do we mean by “controlling for”?
Wages
“Raw”
wage
difference
Wage difference between blacks
and whites at the same
educational level, or “controlling
for education”
Prod.
24
Testing for wage discrimination (I)
 In general some share of the lower wages of blacks or women
(or lower employment) is explained by other factors, but some
share also remains unexplained after controlling for differences
in proxies for productivity
 Limitation faced by most research is we don’t have actual
productivity measures
– Economists typically have access to data on “proxies” for
productivity
• Schooling, experience, job tenure, training
• Other personal characteristics that might or might not be
productivity related
25
Testing for wage discrimination (I)
26
Testing for wage discrimination (II)
 Debate over this study helped to clarify that what economists are
studying is discrimination in the labor market
– Still present, at least for men, based on this evidence
– But large part of problem may also be differences formed
before different groups get to the labor market, which may
reflect discrimination of other varieties
 Without actual productivity measures, left with endless arguments
about whether regressions like these capture productivity-related
differences, or whether remaining gaps by sex, race, etc., reflect
unmeasured differences
– E.g., allocation of effort, school quality
– Conclusions therefore closer to religion than science—answers
depend more on beliefs than evidence
27
Testing for wage discrimination (III)
 There are contexts where we can get somewhat
further
– Prime example is statistical analysis of company
level data sets, most often in court cases
– These data sets often contain performance or
productivity measures, and they are the ones the
company uses in its own personnel decisions
28
Alternative tests for discrimination
 Special contexts in which we can’t measure individual
productivity, but can estimate productivity differences across
groups, and compare with wage differences
– Research with Hellerstein and others, for the manufacturing
sector, finds that women are a bit less productive than men,
but the pay gap is much bigger, suggesting wage
discrimination
 Alternative is to be more “experimental,” creating fake job
applicants that are identical except with respect to race or sex
– “Audit” or “correspondence” studies
– These studies generally provide evidence of
discrimination—but these studies focus mainly on hiring,
not pay
29
Evidence from audit studies, example
 In 1996 study, we tested for hiring discrimination against
women in very expensive restaurants in Philadelphia (joint
project with undergrads)
30
Evidence from audit studies, example
31
Evidence from audit studies, example
32
What about age discrimination?
 I’ve said a lot less, because there is less evidence
– The prima facie case is weaker than for race or sex, since
older workers on average earn more, rather than less, than
reference group, and also have high employment rates
• I did, though, note longer unemployment durations for
older individuals, pointing to more difficulty in finding
new jobs
– Yet if we look at enforcement activity, we might conclude
that age discrimination is extensive
33
What about age discrimination? (Charges filed
with EEOC)
Totala
ADEA
ADA
Title VII
(1)
(2)
(3)
(4)
143,686
22,931
23,708
96,070
Benefits
.9
1.5
1.4
.7
Demotion
1.8
2.7
1.4
1.7
Discharge
31.6
36.8
35.9
29.5
Discipline
5.3
4.8
4.1
5.7
Harassment
16.1
8.6
8.0
20.0
Hiring
4.2
8.4
4.9
3.1
Layoff
1.6
3.6
1.7
1.2
Promotion
4.6
6.0
1.7
5.0
Reasonable accommodation
3.3
18.3
.5
Retirement-involuntary
.2
.6
.2
.04
Severance pay denied
.05
.1
.08
.03
Terms/conditions
13.1
12.4
9.3
14.3
Wages
4.1
3.3
1.3
4.2
Waivers
.09
.15
.13
.06
Other
13.1
11.2
11.6
14.0
Discharge + layoff
33.2
40.4
37.6
30.7
Total allegationsb
Issues alleged (percent)c
34
What about age discrimination? (EEOC
litigation)
Bases allegeda
Total
Age
Disability
Race
Sex
(1)
(2)
(3)
(4)
(5)
Benefits
5
4
Demotion
9
3
1
2
Discharge
239
24
28
32
61
Discipline
15
1
2
5
Harassment
160
7
Hiring
50
10
Layoff
14
4
Promotion
22
5
Reasonable accommodation
29
Retirement-involuntary
2
2
Severance pay denied
1
1
Terms/conditions
33
4
Wages
13
Waivers
3
Other
39
10
2
37
105
7
20
3
6
10
5
12
13
19
5
1
7
3
9
6
Discharge + layoff %
66%
65%
57%
43%
37%
Hiring %
13%
23%
20%
9%
11%
35
Evidence on age discrimination
 My work finds that much of the problem in past decades was
discharge of older workers, breaking of what economists call
“implicit contracts” that ask for long-term commitment from
workers, with higher pay at older ages as reward
– Consistent with large share of discharge/layoff cases
 But the EEOC litigation statistics also point to age
discrimination in hiring
– Harder to establish with audit studies, but evidence points to
hiring discrimination
– Likely to become increasing problem as share of population
aged 65+ increases, and many look for part-time or new jobs
after leaving long-term career
36
Outline
 How do economists think about labor market
discrimination?
 What have been the policy responses?
 Did the anti-discrimination laws help reduce
discrimination?
 Is discrimination still with us?
 What are the contemporaneous effects of antidiscrimination policies?
37
Contemporaneous debates about antidiscrimination policies
 Discussion of age discrimination in hiring, and our
quick look at statistics on enforcement activity, is a
good segue into brief discussion of current antidiscrimination policy
 Two issues prominent in debate
– Discharge/termination vs. hiring
– Affirmative Action
38
Discharge/termination vs. hiring
 Do anti-discrimination policies mainly provide protection
against discharge, and fail to remedy discrimination in hiring?
– May be inadvertent consequence of legal structure (proof,
damages, relief)
– Consequence could be deterrence of hiring of protected
groups
 Some research on age discrimination in hiring suggests that in
states where laws are stronger, there is less hiring of older
workers
– Not convinced by evidence, but it is true that evidence of
beneficial effects of age discrimination laws does not extend
to hiring
39
Affirmative action (I)
 Many components of this debate
– Benefits of diversity, stigmatization of
beneficiaries, hiring/promotion of unqualified
minorities or women (and efficiency
consequences)
 Useful to think in terms of two prevailing views of
AA, and public’s perception of them
– Special training and other programs that help
disadvantaged groups advance (supported in
opinion polls)
– Preferential treatment (opposed)
40
Affirmative action (II)
 Evidence on effects of AA from data on companies, hiring
procedures, and hires
– Use of more recruiting methods, less reliance on informal
networks
– More women and minority applicants
– More intensive screening of applicants
– More willingness to hire applicants on welfare, with criminal
records, etc.
– More hiring of women and minorities
– Minority applicants less qualified in terms of educational
requirements
– More training and evaluation of hires under AA
– Little or no evidence of performance differences
41
Affirmative Action (III)
 Evidence from my research consistent with “benign” view of AA
– AA results in firms “casting a wider net” in searching for
employees
– Encourages companies to rely less on easily observable
signals like education, criminal record, etc., that are strongly
correlated with race but don’t tell us everything about a worker
– Also encourages some remediation and training
– End result is that, while costs may be somewhat higher, result
is most consistent with equally qualified but more diverse
workforce emerging
 Big unanswered question is what, precisely, are the benefits of
diversity?
– Could be asked in educational context as well
42
Summing up
 Economists focus on what happens in the labor market (as
opposed to before people get to the labor market), exploring how
discriminatory tastes can affect market transactions and generate
these disadvantages
 Socioeconomic disadvantages of some groups persist today,
consistent with continuing discrimination
 Critical to account for other influences, and not attribute all
observed differences to discrimination
– However, most evidence suggests that discrimination plays
some role with respect to race, sex, and also age
 Public policy has helped to lessen discrimination, while avoiding
the more severe problems that critics sometimes allege
– But public policies need continuing reevaluation
43
Public policy and economics education
 On issues related to discrimination, and many other topics, new
arguments continually arise in policy discussions
 Economics educators are front-line of battle to increase economic
literacy, helping public to sort out the good arguments from the
bad ones
– Key elements
• Get the basic facts right
• Economic reasoning
• Grasp of basic statistical concepts
• Understanding how public policy works (and don’t forget
about unintended consequences)
• Access existing research, but not uncritically
– And in some cases, see if students can do their own
research
 No single formula for teaching students how to think about public
policy issues, but I hope this “road map” of how economists think
about and study discrimination is a useful model
44