Labor Economic Issues

1. Labor Economic Issues

2. Definitions That I Will Use: Normative: propositions about how I think the world ought to be. Positive: propositions about how I think the world actually is.

3. The policy focus is on differences in wages between people. Why do these occur? Are they evidence of market failure or discrimination?

4. Prejudice:Persistent incorrect belief about a racial or ethnic group, that may be either harmful (usually) or beneficial to them. Discrimination:An act that causes someone loss of income or physical harm and is based on the individual’s group membership in an irrelevant way.

5. Historical notes: African Americans 1. African Americans are diverse among themselves: For example, descendants of American slaves and descendants of West Indian were different. For example, descendants of American slaves and descendants of American freemen were different. 2. Negro was defined differently in America vs the Caribbean: "one drop of blood." 3. Southern slaves were probably hard workers contrary to earlier historians' beliefs. 4. Booker T. Washington and W.E.B.Dubois represented opposite philosphies to improve African American life.

6. Historical notes: Overseas Chinese 1. Discrimination against them often included physical abuse and mass murder by other Asians. 2. The most common complaint against them seems to be that they were too industrious and got ahead of the native born people. 3. The American experience: amazingly hard working but not all of them nice people either: the Tong Society.

7. Historical notes: Irish Americans 1. "No dogs or Irish": Why slave owners preferred to hire an Irishman for a risky job than to send their own slave. 2. Sowell: The Irish took the political route to economic and social success and "this slowed down their inevitable progress."

8. Historical notes: The Jews in America: 1. "Low IQs" on the Army tests in WWI. 2. Restricted clubs were minor discriminations compared to their experience in Europe. 3. Preeminence in intellectual fields as well as entertainment. 4. Successive assimilation: western Euopean Jews at first looked down on the later arriving east European Jews.

9. Historical notes: German and Japanese Americans: 1. Both industrious and community-minded immigrants. 2. Contrast their experience during WWII:

10. Historical notes: Discrimination between groups of the same racial and ethnic makeup. 1. Hutus versus the Tutsis in Rwanda. 2. Why the Germans tattooed the Jews during the Holocaust. 3. Why Catholic and Protestant Northern Irish children came to America in the summers.

11. Lessons from these historical notes: 1. Discrimination happens between people of the same skin color, religion, and ethnicity. 2. Discrimination is common throughout the world and is probably as common as tolerance. 3. Ethnic and racial groups experience divers progress economically and socially. 4. Ethnic groups are often themselves diverse. 5. Some "stereotypes" have a truth in them, some don't.

12. Discrimination is based on the making of comparisons between races, ethnic groups and the genders. Let's ask "Can valid comparisons be made between these groups?"

13. However, economists would generally warn you about comparing conglomerations of things across groups of people: ("conglomerations of things": e.g. a summing up of average education, income, artistry, musicianship. In other words, it's generally invalid to compare e.g. the "Worthwhileness" or the "Contribution to Humanity" or any such conglomeration of things (see above) across groups of people by race, ethnic group, religion, gender etc.

14. A Pentathalon Game: (A game to show the impossibility of making objective comparisons of ethnic, race, and gender groups for conglomerates of measures. A "Pentathalon" is a track meet competition that has five events. Each athlete competes in and obtains a judging score from 0 to 100 in each event. Hint: The overall score for each athlete is a conglomeration of his five event scores.

15. For example, Joe Lapeer gets: Joe’s Judges’ score weights 1. 100 yard dash: ............. 60 pts .20 2. Marathon:..................... 78 pts .50 3. Shot put:....................... 30 pts .10 4. Relay:........................... 89 pts .05 5. High jump:................... 40 pts .15 Weighted sum* 64.45 1.00 *The "conglomeration."

20. Moral of the story: Most comparisons of racial, gender and ethnic groups require an implicit summing and weighting of multiple characteristics, and so they are not objectively valid as a general rule.

21. Becker's theory of economic discrimination: Algebraic version: Assume the wage an employer must pay for both B and W laborers is w. Assume the psychic cost of hiring a B, as experienced by a bigoted employer is equivalent to 10 percent of w, that is, the bigot "pays" (1 + 0.1)w when hiring a B.

22. Then by the Optimal Input Purchase Rule, the bigot will hire Bs and Ws up to the point where MPB/(1+0.1)w = MPW/w. But this implies that MPB/w > MPW/w. Moral of the story: From the bigots point of view, he is hiring Bs efficiently, but from an objective point of view he is giving up profits he could have had by hiring more Bs.

23. A numerical example: If MPB=12 widgits and MPW=8 and w=$25. The Bigot could fire a W (saving $25) and hire a B (spending the same $25) and gain 4 widgits net. The 4 extra widgits are found as the difference between the 8 W-made widgits given up when W is fired, and the 12 B-made widgits gained by hiring the B.

25. The Moral of Becker's Theory: Oddly enough, the bigot is one of the victims of his own bigotry, and of course so is the B laborer. Coupled with what we know of competitive markets, these markets will help to eliminate bigotry, if Becker is correct, that is, bigotry would decidedly have no survival value in a competitive market system.

26. Sex Discrimination on the Job Two types: 1. Sex discrimination occurs when women are shunted into low-paying careers. 2. Sex discrimination occurs when women are paid less for doing the same work?

27. Do women make better: 1. nurses? 2. secretaries? 3. doctors? 4. lawyers? 5. firemen? 6. combat soldiers? 7. wrestlers?

28. What the law says: 1. the government generally leaves a business alone unless they detect a fairly clear discrepancy between the firm’s workforce and the labor force. 2. or if the firm can show that the nature of the job rules out the females in question.

29. What is “Comparable Worth?” Principle of comparable worth: People with similar human capital should get similar wages.

30. Human Capitalin practice, means the person's education and experience. This concept guides the market approach to evaluating whether sex discrimination is occuring in a job market or for an individual person.

31. Market Approach in practice: First: Adjust for the human characteristics that are important for people's productivity at work. 1. Experience (in years). 2. Education (in years). 3. Field (engineers usually make more than biologists). 4. IQ (the measure of school quality). Second: Measure the contribution of gender. 5. Woman dummy (equals one if female).

32. How can we tell if women are underpaid today? (Applying the market approach): Wage=a + b*Education + c*Experience + d*Field + e*IQ + f*Woman + u This equation is estimated with data. If f < 0 we know there is discrimination.

33. What do the real world data show? "Wage discrimination has ended for American women. African Americans have achieved a par with whites." (Journal of Human Resources). Other studies: comments.

34. Introduction to Bigamy: Good economists are often of the type of person who pursues ideas regardless to wherever they lead. Sometimes the result is correct, but sometimes it seems (or even is) odd. Which of these is the case when Gary Becker reasons that under certain economic conditions, both women and men will prefer bigamy in a marriage equilibrium?

35. An exercise with supply and demand: Becker's Theory of why some societies approve of men having more than one wife: The "marriage price" is anything of value offered to the wife for her to willingly marry, by this she determines her "wife supply." "Wife demand" shows the highest marriage price the husband would be willing to pay. Here, men are in "short supply."