Recent developments in the labor market Blau (pages 235-242)

1. Recent developments in the labor marketBlau (pages 235-242)

2. What has changed the wage gap? • Attitudes • Money • Real wages have been relatively constant (or slow growing) • $1.55 was the average price of gas in September 2002 • $1.54 was the average price of gas in 1950 adjusted for inflation

3. Real vs. Nominal Prices • Use to compare the price today to the past or future • Real • Accounts for inflation • Gas prices in 2002 averaged $1.59. Adjusting for current inflation gas prices in 1974 would have been $1.57. • Nominal • Current prices • Quart of Milk was $0.40 in 1970 and $1.25 in 2000

4. How convert?? • CPI (Consumer Price index) • Looks at how a cost of a “basket of goods” purchased in some “base year” changes over time • Base year now is 1983 • Percent changes in the CPI measure the rate of inflation • How do you calculate a percent change? • (new-old)/old

5. Example • 1970 CPI = 38.8 • 1999 CPI = 167 • Was there a little or much inflation?? • Much (especially in the 70s and 80s) • Milk prices were $1.05 in 1999 and $0.65 in 1970 • Was milk more expensive in 1999?

6. What is 1999 milk in 1970 dollars? • (38.8/167)*$1.05 = $0.24 • Milk was less expensive in 1999 • What was 1970 milk in 1999 dollars? • (167/38.8)*$0.65 = $2.80 • Milk was more expensive in 1970

7. In-class exercise 11 Using the CPI

8. Review • What is a real wage? • Wages adjusted for the cost of living • What is a wage? • Amount someone is paid for their productivity or their return to skill • You get an increase in wage from $10,000 to $15, 500. What is your rate of return for your skill level? • 55% or the percentage change in your income • (15500-10000)/10000 or (new-old)/old

9. What is a ECONOMIC reason for the wage gap? • Would you expect an editor to get paid $100,000? A neurosurgeon? • What is the difference? • Human Capital • Investments in skill level or knowledge

10. Human Capital • Skills you acquire • How does it relate to skill level? • Increases your skill level • How does it relate to wage? • Increases your wage

11. How does HC relate to women and wage gap? • Women are gaining more HC • HC increases wages • Wage gap is decreasing • Why isn’t wage gap closer to zero? • Other things increase wages like seniority and experience (women have less compared to men)

12. Losses to men are gains to women • Wage gap decreased when middle management began to be cut out • Many men lost high paying middle mgmt jobs • Denominator of the gender earnings ratio decreased • Looks like women are doing better • Actually men were doing a little worse

13. Averages are deceptive • 4 student’s exam grades: 100,75,73,69 • Average = 79 • Looks like only 1 person did well • Throw out 100 • Average = 72 • Looks like 2 of the remaining 3 did well • Looks better

14. What makes up the wage gap?? • Part due to differences in human capital • Part due to discrimination • Pre-market (in gaining human capital) • Market (gaining the job itself) • Which is bigger? • Human capital? Economy is not at fault • Discrimination? Economy is not using the most productive workers available

15. Are differences in wages due SOLEY to discrimination? • NO… • Due to differences in lifetime labor force participation • Due to differences in male/female tastes for occupations

16. First Reason Men and Women’s wages are not equal • Intermittency in labor force participation • Atrophy • Depreciation of skills from non-use

17. Lifetime Labor Force Participation • Married women tend to work intermittently throughout lifetime • Intermittency has decreased for women but it still exists • Past: average was 5 years • Present: average is 1 year (47% re-enter after 6 months) • While out of the labor force do you get paid for the human capital you have accumulated? • NO

18. What is payment for HC?? • Return to Human Capital • Amount of wage increase gained by the accumulation of human capital

19. In-class exercise 12 Wage discrimination or not??

20. Average Wages: 15936 (man) 9487.10 (female) Return to HC: 10% (man) 7% (female)

21. Important Points • If only look at return to HC can claim woman is discriminated against • If look at labor force participation see CHOICE brings about return differences

22. What types of choices come out of this? • If you don’t expect to work as many years do you get as much HC? • NO!!! • Choose jobs with lower atrophy rates • What types of jobs are these? • Less technical • How do these decision affect wages?

23. Atrophy Uncle Henry was driving to Halifax when he spotted a big green gorilla on the side of the road. He screeched to a stop, jumped out of his car. He saw the outline of a number on the gorilla. He couldn't quite see the number, but he knew it was a 4 digit number. And: • He remembered seeing a number 1. • In the hundred's place he remembers the number is 3 times the number in the thousand's place. 3) He said the number in the one's place is 4 times the number in the ten's place. 4) Finally he said the number 2 is sitting in the thousand's place. What is the number? • 2614

24. How does atrophy lead to women having lower wage jobs? Can we see this graphically?

25. Male earnings k Female d a c b age

26. So… • Wage gap is greater because of preferences between men and women NOT discrimination • Second reason…tastes for occupation • Men and women appear to have different tastes which affect occupational choice • 1984 study • Wages are determined by occupation one is in • Wages differ because occupations differ

27. The Road to an Occupation What causes us to make the decisions we do?? Blau (141-183)

28. Where does gender difference in earnings come from? • Differences in education, training, or skills • Discrimination • We will deal with the less subjective one first

29. Why might men’s and women’s tastes for occupations differ? • Reasons? • How do these reasons affect wage? • What are some problems with trying to identify differences in “tastes” between men and women? • What about innate ability?

30. Are differences due to choice or societal discrimination? • What is societal discrimination? • Influences that cause men/women to make decision that adversely affect their labor market status • Examples: • Advertisements • Eating disorders and size of model • fads • How does it shape actions and ideals?

31. More direct way to look at differences… • Human Capital: invest now to increase future earnings • Education • On the Job Training • Job search • Geographic migration • NOT physical capital (i.e. machines or equipment) • How does physical capital differ from human capital? • Physical capital is influenced by the money it will bring about • Human capital less influenced by money

32. Physical vs. Human Capital cont. • Why does the government give so much money to students??? • Why don’t banks readily give students money for college??

33. Why do men and women gain different amount of education? • Men and women equally likely to finish high school • Men are slightly more likely to go to college • Men are most likely to complete all four years of college in sequence

34. Differences by Race • Overall pattern similar to white trend • Women more likely to finish high school • Men more likely to finish college (smaller difference) • Blacks and Hispanics vs. white • Less educational attainment than whites • Higher probability of high school drop out • Lower probability of gaining some college

35. Attainment is only half the story • Beginning in high school… • Men and women (regardless of race) tend to differ in courses taken and fields of specialization • Girls…less natural science and mathematics • decreasing but still true • 1972 – girls took 20% fewer semesters in these subjects than boys • 1992 – girls took 98% as many as boys

36. Trends

38. So… • Gap appears to be closing • Men and women appear to be choosing similar disciplines but earnings differentials still exist

39. Why does education increase wage? • Productivity increases • Where does the productivity come from? • What “types” of productivity? • Punctuality, follow instructions, dependable… • So does education act as a signal to your potential employer? • What types of signals?

40. How do employers “choose” employees? • Use a screening device • Signals • Tests • Interviews • Problem is imperfect information • Resume and References

41. Socialization • Influence of family, friends, teachers, and media over an individual’s actions by changing the shape of attitudes • Gender depiction in television • Influences perceptions of gender appropriate behavior • Shapes aspirations and behavior

42. Children’s games and movies • Do stereotypes still exist??? • Girls board games: Sealed with a Kiss, Blind Date, Mall Madness • Boys board games: Star Wars, Jumanji • Videos • Toy Story • Barbie and GI Joe

43. Barbie in the 60’s Barbie in the 70’s and 80’s Barbie in the 90’s

44. GI Joe in 2001 GI Joe in the 80’s and 90’s

45. In-class exercise 12 • Socialization differs whether one is being brought up for a “traditional” or “non-traditional” role • Outside experiences such as travel, education, interactions with others…all influence and “form” the individual • Purpose: Take individuals and and explore the socialization forces and their impact on individuals • How can socialization lead to individuals going down very different career paths?

46. Review… • Men and women differ as to investment in human capital and major area of study • WHY? (two reasons) • Expected work life • Socialization

47. Social Influences • May not be explicit but influential in shaping behavior • Examples? • Shapes our ideas of what masculine and feminine traits “should” be • Masculine: dominance, competitive, rational • Feminine: subordinate, nurturing, emotional

48. What does this influence? • Ideas of what type of person should do certain jobs • Male or female? • Hairdresser • Kindergarten teacher • Biology professor • Seamstress • Computer repair person • If you expect a certain type of person and get the opposite your experience may be changed (+ or –)

49. So isn’t this discrimination? • Yes… • Title IX of the Educational Amendments (to the Civil Rights Act of 1964) • What does it do? • Prohibits discrimination on the basis of sex in any educational program or activity receiving federal assistance

50. Why is the government able to DICTATE this type of provision in this area? • Provision excludes • Sex instruction, chorus, and contact sports