MEASURING lABOR-MARKET DISCRIMINATION

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MEASURING lABOR-MARKET DISCRIMINATION

How much does discrimination in labor markets affect the earnings of different groups of workers? Tills question is important, but answering it is not easy.

There is no doubt that different groups of workers earn substantially different wages, ‘as Table 2 demonstrates. The median black man in the United States is paid 22 percent less than the median white man, and the median black woman is paid 13 percent less than the median white woman. The differences by sex are also significant.

TABLE 2 Median Annual Earnings by Race and Sex

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Yet there is a potential problem with this inference, Even in a labor market free of discrimination, different people have different wages. People differ in the amount of human capital they have and in the kinds of work they are able and willing to do. The wage differences we observe in the economy are, to some extent, attributable to the determinants of equilibrium wages we discussed in the preceding section.

Simply observing differences in wages among broad groups-whites and blacks, men and women does not prove that employers discriminate.
Consider, for example, the role of human capital. Among male workers, whites are about 75 percent more likely to have a college degree than blacks. Thus, at least some of the difference between the wages of whites and the wages of blacks can be traced to differences in educational attainment. Among white workers, men and women are now about equally likely to have a college degree, but men are about 11 percent more likely to earn a graduate or professional degree after college, indicating that some of the wage differential between men and women is attributable to educational attainment.

Moreover, human capital may be more important in explaining wage differentials than measures of years of schooling suggest. Historically, public schools in predominantly black areas have been of lower quality-as measured by expenditure, class size, and so on-than public schools in predominantly white areas. Similarly, for many years, schools directed girls away from science and math courses, even though these subjects may have had greater value in the marketplace than some of the alternatives. If we could measure the quality as well as the quantity of ed~cation, the differences in human capital among these groups would seem even larger.

Human capital acquired in the form of job experience can also help explain wage differences. In particular, women tend to have less job experience on average than men. One reason is that female labor force participation has increased over the past several decades. Because of this historic change, the average female worker today is younger than the average male worker. In addition, women are more likely to interrupt their careers to raise children. For both reasons, the experience of the average female worker is
less than the experience of the average male worker.

Yet another source of wage differences is compensating differentials. Men and women do not always choose the same type of work, and this fact quay help explain some of the earnings differential between men and women. For example, women are more likely to be secretaries, and men are more likely to be truck drivers. The relative wages of secretary and truck drivers depend in part on the working conditions of each job. Because these nonmonetary aspects are hard to measure, it is difficult to gauge the practical importance of compensating differentials in explaining the wage differences that we observe.In the end,  study of wage differences among groups does not establish any clear conclusion about the prevalence of discrimination in U.S. labor markets. Most economists believe that some of the observed wage differentials are attributable to discrimination, but there is no consensus about how much. The only conclusion about which economists are in consensus is a negative one: Because the differences in average wages among groups in part reflect. differences in human capital and job characteristics, they do not by themselves say anything about how much discrimination there is in the labor market.

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MEASURING lABOR-MARKET DISCRIMINATION