28
THE ECONOMICS OF RACE AND SEX
DISCRIMINATION
________________________________________________________________________
CHAPTER OUTLINE
The Economic Status of Women and Minorities
Definitions and Detection of Discrimination
Discrimination in Labor, Consumption, and Lending
Affirmative Action
Summary
LEARNING OBJECTIVES
LO1: Describe how economists measure the income disparity between the races and sexes.
LO2: Define what discrimination is, how it is measured, and how it is detected.
LO3: Model discrimination in the labor market and summarize the evidence for its existence in the markets for
real estate, automobiles, and lending.
LO4: Describe what affirmative action is; how, why, and when it came about; and what forms of it exist today in
the United States.
KEY TERMS
Labor-force participation rate- The percentage of the population of a group that is employed or seeking
employment.
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- Unequal treatment of classes of people that is based on sound statistical
evidence and is consistent with profit maximization.
Affirmative action- Any policy that is taken to speed up the process of achieving equality.
2
Chapter 28
DISCUSSION QUESTIONS
1. What are the two types of discrimination? Define them.
2. From a legal standpoint, how do these two types of discrimination differ?
3. What is “rational” or “statistical discrimination”? What does this mean about the market? Is it legal?
4. How do economists measure discrimination?
5. Before the Civil Rights Act of 1964, racial discrimination was legal in the United States and was practiced in
the labor markets. How did this affect the wages of African Americans and Caucasians? If discrimination
were eliminated completely from the labor markets, how would this affect the wages of African Americans
and Caucasians?
6. What is affirmative action, and what is the economic rationale for such corrective policies?
7. What are the five forms of affirmative action?
8. What does labor-force participation measure? How has women’s labor participation changed since the early
1960s? How has women’s full-time wages and total income changed relative to men’s earnings?
9. Since 1967, how has the median African-American family income relative to Caucasian family income
changed in absolute terms and in relative terms?
10. In the 1950s, gender discrimination was legal, and it was practiced throughout the U.S. labor markets. How
did this affect the wages of men and women? Sexual discrimination is now illegal in the United States. If at
some point in the future sexual discrimination were eliminated completely from the labor markets, how would
this affect the wages of men and women?
11. What is the troubling racial aspect of the 2007-2009 recession?
The Economics of Race and Sex Discrimination
3
THE WEB-BASED QUESTION
The U.S. Equal Employment Opportunity Commission (EEOC) manages all the federal regulations, practices,
and policies relating to equal employment opportunity. Visit the following website of the EEOC, “Federal
Laws Prohibiting Job Discrimination, Questions and Answers,” to learn about the federal laws prohibiting
discrimination. Summarize the process for filing a charge of discrimination.
www.eeoc.gov/facts/qanda.html
4
Chapter 28
ANSWERS TO STUDY QUESTIONS
SUGGESTED ANSWERS TO THE DISCUSSION QUESTIONS
1. The two types of discrimination are disparate treatment discrimination and adverse impact discrimination.
Disparate treatment discrimination is treating two otherwise equal people differently because of some
characteristic, such as race or gender. Adverse impact discrimination is doing something that is not
necessarily outwardly discriminatory, but it has a more negative effect on some groups than it affects others.
2. From a legal standpoint, the two types of discrimination differ. Disparate treatment discrimination is always
and under all circumstances illegal. Adverse impact discrimination is usually illegal, but it can be permitted if
it can be shown that the action that was taken was done because it was a business necessity.
3. Rational or statistical discrimination is discrimination that is based on sound statistical evidence and that is
consistent with profit maximization. This means that there is some statistical difference between groups of
people in the market, which explains the discriminatory actions. Even if discrimination in the market is
“rational” for a profit maximizing businessperson, rational or statistical discrimination is illegal.
4. To measure discrimination economists use two methods, regression analysis and auditors.
Regression analysis is a statistical technique that can control the influence of other factors, and it measures the
level of discrimination by looking for a systematic pattern of discrimination.
Auditors take on the same identities in various situations. They play different roles and pretend to be
individuals who have virtually the same characteristics except for some other trait, such as race or gender. By
comparing their exchanges and interactions with contacts, they investigate and examine if they were treated
differently. The auditing technique usually measures more discrimination than the regression technique.
5. Before the Civil Rights Act of 1964, racial discrimination was legal and was practiced in the labor markets.
The wages of Caucasians were higher and the wages of African Americans were lower. When only
Caucasians were hired for certain jobs, the supply of workers for this job was lower, and Caucasian’s wages
were higher. When African Americans were restricted to certain jobs, the supply of workers for this job was
larger, and the wages of African Americans were lower.
If racial discrimination were eliminated completely from all the labor markets in the United States, wages for
African Americans and Caucasians would be the same. At first, employers would want to hire African
Americans to do the jobs traditionally done by Caucasians, and pay them a slightly lower salary. This would
raise African American’s salaries until the wages eventually became equal.
6. Affirmative action is any policy that is taken to speed up the process of achieving equality. Such corrective
policies are economically rational because bigotry creates a market failure in the labor market. Discrimination
causes wages of Caucasians to be higher and wages of African Americans to be lower. Resources are not
being efficiently used in the markets to produce goods and services. Government intervention in the market is
justified to correct this market failure.
7. The five forms of affirmative action are:
1) Making sure that all potentially qualified applicants know about a job opening.
The Economics of Race and Sex Discrimination
5
2) If two applicants are equal, hiring the minority.
3) Given a set qualification, hiring all minorities that meet this criterion. The remaining slots can be
filled with non-minorities, and the cut-off may be at higher standard than the criterion set for
minorities.
4) Being sure that the proportions of minorities reflect the proportions of the pool of eligible persons.
5) Using court mandated quotas to correct proven cases of past discrimination.
8. Labor-force participation measures the percentage of a group that is employed or seeking employment.
Women’s labor-force participation rates have increased from 38 percent in the early 1960s to the current rate
of 60 percent.
In the late 1960s, women’s total income represented only one-third of men’s income, and women’s full-time
wages were less than 60 percent of a men’s wages. Today, women still earn significantly less than men do.
However, women’s income is now about 58 percent of men’s earnings, while women’s full-time wages are 80
percent of men’s wages.
9. In absolute terms, the difference between Caucasian family income and African-American family income has
grown from $3,359 ($8,234 - $4,875) in 1967 to $21,399 ($55,768 - $34,369). However, in relative terms, the
gap has shrunk. In 1967, the median African-American family income was 59 percent of the Caucasian family
income, and today, it is a slightly higher 62 percent.
10. When sexism was legal in the 1950s and practiced in the U.S. labor markets, the wages of men were higher
than women’s wages. When only men were hired for certain jobs, the supply of workers for this job was
lower, and men’s wages were higher. When women were only allowed to do certain jobs, the supply of
workers for this job was larger, and the wages of women were lower.
Although sexual discrimination is now illegal in the United States, it still exists. If sexism could be
completely eliminated from all the labor markets at some point in the future, the wages for women and men
would be the same. At first, employers would want to hire women to do the jobs traditionally done by men,
and they would pay them a slightly lower salary. This would raise women’s salaries until the wages
eventually became equal.
11. The troubling aspect of the 2007-2009 recession is that while unemployment increased, African Americans,
especially black teenagers, suffered more unemployment than whites.
6
Chapter 28
SUGGESTED ANSWER TO THE WEB-BASED QUESTION
The following is a summary of the process for filing a charge of discrimination.

Any person who believes that he or she has been discriminated against in employment can file a
charge with the EEOC. Another person, organization, or agency also can file charges on behalf of
an individual in order to protect the person’s identity.

The time limit to file charges can be as short as 180 days after the alleged violation of the law.

The EEOC will investigate the charge to see if a violation of the law has occurred. If reasonable
cause is found, they will attempt to mediate the dispute and to reach a voluntary resolution.

If mediation fails, the EEOC may decide to bring a suit in federal court.

If the EEOC decides not to go to court, the individual also has the right to sue, if the person files a
suit within 90 days.

Employment information is available by race/ethnic group, by sex, and by occupation.
The above information was taken from www.eeoc.gov/facts/qanda.html.