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The measurement of pay discrimination between job assignments

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  • Bodvarsson, Orn B.
  • Sessions, John G.

Abstract

The traditional Becker/Arrow model of taste discrimination in pay depicts majority and minority labour as perfectly substitutable, implying that all workers perform precisely the same job assignment and have the same qualifications. The model is thus only appropriate for determining whether ceteris paribus pay differences between white workers and non-white workers, for example, performing job assignment A are attributable to prejudice ('within-assignment discrimination'). The model is inappropriate for determining whether ceteris paribus pay differences between white workers in assignment A and non-white workers in assignment B reflect prejudice ('cross-assignment discrimination'). We extend the traditional model to allow for cross-assignment discrimination and we propose an empirical methodology for its estimation. In so doing we address two broad questions: (1) Do predictions about cross-assignment discrimination vary with the form of the production function?; and (2) How can one estimate such discrimination when there is no common measure of productivity? We address the first question by deriving a measure of cross-assignment discrimination for four different production functions--Generalized Leontief, Quadratic, CES, and Cobb-Douglas. The Generalized Leontief provides the most general results, although closed form solutions are not possible. Closed form solutions are obtainable from the other three functions, but only under restrictive assumptions. There are two main findings. First, most predictions are generally robust across functional forms. Second, cross-assignment discrimination depends upon productivity and labour supply differences between the two worker groups, labour market structure, and the interaction between relative group productivity and prejudice. We address the second question by outlining, for future exploration, a two-stage regression methodology in which a standardised (i.e. common) measure of productivity is estimated separately for each occupation. This measure is then incorporated as a right-hand-side explanatory variable in a second-stage, all-occupation regression designed to estimate cross-assignment discrimination. We discuss the proposed methodology with reference to a valuable and interesting test case: The market for professional sports players.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 18 (2011)
Issue (Month): 3 (June)
Pages: 297-309

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Handle: RePEc:eee:labeco:v:18:y:2011:i:3:p:297-309

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Web page: http://www.elsevier.com/locate/labeco

Related research

Keywords: Wage discrimination Complementarity Monopsony power;

References

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  1. Cotton, Jeremiah, 1988. "On the Decomposition of Wage Differentials," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 236-43, May.
  2. Borjas, George J, 1986. "The Sensitivity of Labor Demand Functions to Choice of Dependent Variable," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 58-66, February.
  3. Bodvarsson, Örn B. & Sessions, John G., 2008. "The Measurement of Racial Discrimination in Pay between Job Categories: Theory and Test," IZA Discussion Papers 3748, Institute for the Study of Labor (IZA).
  4. Sylvia A. Allegretto & Michelle M. Arthur, 2001. "An Empirical analysis of homosexual/heterosexual male earnings differentials: Unmarried and unequal?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(3), pages 631-646, April.
  5. Bodvarsson, Orn & Sessions, John, 2010. "Nationality Discrimination in the Labor Market : Theory and Test," Department of Economics Working Papers 19997, University of Bath, Department of Economics.
  6. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  7. Gauger, Jean, 1989. "The generated regressor correction: Impacts upon inferences in hypothesis testing," Journal of Macroeconomics, Elsevier, vol. 11(3), pages 383-395.
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  9. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  10. James H. Grant & Daniel S. Hamermesh, 1980. "Labor Market Competition among Youths, White Women, and Others," NBER Working Papers 0519, National Bureau of Economic Research, Inc.
  11. G. Reza Arabsheibani & Alan Marin & Jonathan Wadsworth, 2005. "Gay Pay in the UK," Economica, London School of Economics and Political Science, vol. 72(286), pages 333-347, 05.
  12. Finis Welch, 1967. "Labor-Market Discrimination: An Interpretation of Income Differences in the Rural South," Journal of Political Economy, University of Chicago Press, vol. 75, pages 225.
  13. Kahn, Lawrence M, 1991. "Customer Discrimination and Affirmative Action," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 555-71, July.
  14. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  15. Hashimoto, Masanori & Kochin, Levis, 1980. "A Bias in the Statistical Estimation of the Effects of Discrimination," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 478-86, July.
  16. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier.
  17. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February.
  18. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226041162, October.
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