Page 418 - The Principle of Economics

426 PART SIX
THE ECONOMICS OF LABOR MARKETS
discrimination
the offering of different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics
when analyzing earnings. Although most wage differences can be understood while maintaining the assumption of equilibrium in the labor market, above- equilibrium wages play a role in some cases.
QUICK QUIZ: Define compensating differential and give an example. N Give two reasons why more educated workers earn more than less educated workers.
THE ECONOMICS OF DISCRIMINATION
Another source of differences in wages is discrimination. Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics. Dis- crimination reflects some people’s prejudice against certain groups in society. Al- though discrimination is an emotionally charged topic that often generates heated debate, economists try to study the topic objectively in order to separate myth from reality.
MEASURING LABOR-MARKET DISCRIMINATION
How much does discrimination in labor markets affect the earnings of different groups of workers? This question is important, but answering it is not easy.
It might seem natural to gauge the amount of discrimination in labor markets by looking at the average wages of different groups. For instance, in recent years the wage of the average black worker in the United States has been about 20 per- cent less than the wage of the average white worker. The wage of the average fe- male worker has been about 30 percent less than the wage of the average male worker. These wage differentials are sometimes presented in political debate as ev- idence that many employers discriminate against blacks and women.
Yet there is an obvious problem with this approach. 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 will- ing to do. The wage differences we observe in the economy are, to a large extent, at- tributable 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—says little about the prevalence of discrimination.
Consider, for example, the role of human capital. About 80 percent of white male workers have a high school diploma, and 25 percent have a college degree. By contrast, only 67 percent of black male workers have a high school diploma, and only 12 percent have a college degree. Thus, at least some of the difference be- tween the wages of whites and the wages of blacks can be traced to differences in educational attainment. Similarly, among white workers, 25 percent of men have a college degree, whereas only 19 percent of women have a college degree, indicat- ing that some of the difference between the wages of men and women is attribut- able to educational attainment.