Applied Economics Essay

Submitted By SyedMustafAhmed01
Words: 8446
Pages: 34

First Pages


PART 4: The Determination of Relative Wages


It’s Been 0.60 Since Biblical Times
“The Lord spoke to Moses and said, ‘Speak to the Israelites in these words. When a man makes a special vow to the Lord which requires your valuation of living persons, a male between twenty and fifty years old shall be valued at fifty silver shekels, that is shekels by the sacred standard. If it is a female, she shall be valued at thirty shekels’”
(Leviticus 27:1–4).
Clearly, a female/male earnings ratio of 30/50 5 0.6 is not a new phenomenon. It has existed—or at least been endorsed—at least since biblical times!

human capital market (e.g., education and training), as well as in the labour market. It can be based on a variety of factors including race, age, language, national origin, sexual orientation, or political affiliation, as well as on sex.
Labour market discrimination can come from a variety of sources. Employers may discriminate in their hiring and promotion policies as well as their wage policies. To a certain extent, the forces of competition would deter employers from discriminating since they would forgo profits by not hiring and promoting females who are as productive as their male counterparts.
However, profit-maximizing firms do have to respond to pressure from their customers and male employees. For this reason, they may be reluctant to hire and promote females, or they may pay females a lower wage than equally productive males. In addition, firms in the large not-for-profit sector (e.g., government, education, hospitals) may be able to discriminate without having to worry about losing profits by not hiring and promoting females.
In addition to discrimination on the part of employers, male co-workers may also discriminate for reasons of prejudice, misinformation, or job security. Akerlof and Kranton (2000), for example, provide examples of how males in typical “male” jobs may find their masculinity threatened, and thereby refuse to co-operate with or informally train female co-workers.
Representing the wishes of a male majority, craft unions may discriminate through the hiring hall or apprenticeship system, and industrial unions may discriminate by bargaining for male wages that exceed female wages for the same work. Another potential source of discrimination is some customers who may be reluctant to purchase the services of females or who may not patronize establishments that employ females, especially in positions of responsibility
(see Exhibit 12.2).
The focus of the chapter is on labour market discrimination that occurs when groups who have the same productivity, or productivity-related characteristics such as education, experience, and training, are treated differently purely because of their demographic group or personal characteristics such as sex, race, age, national origin, or sexual orientation. The different treatment could occur in such forms as wages or the occupation into which they are placed, and it can occur at various phases of the employment relationship; for example, recruiting, hiring, promoting, training, and terminating.
In order to better understand the economics of gender discrimination, various theories of discrimination are first presented. This is followed by a discussion of the methodologies used to measure the discriminatory portion of that differential and the empirical evidence on the extent of sex discrimination in the labour market, as well as discrimination against other groups. The chapter concludes with a discussion of alternative policies to combat discrimination in the labour market.

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First Pages


CHAPTER 12: Discrimination and Male-Female Earnings Differentials

Alternative theories of sex discrimination in the labour market can be classified according to whether they focus on the demand or supply side of the labour market, or on noncompetitive aspects of labour