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The Measurement of Wage Discrimination with Imperfect Information: A Finite Mixture Approach

In: Inequality, Redistribution and Mobility

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  • Juan Prieto-Rodríguez
  • Juan Gabriel Rodríguez
  • Rafael Salas

Abstract

Studies on wage discrimination assume that independent observers are able to distinguish a priori which workers are suffering from discrimination. However, this may not be a good assumption when anti-discrimination laws mean that severe penalties can be imposed on discriminatory employers or when unobserved heterogeneity is significant. We develop a wage discrimination model in which workers are not classified a priori. It can be thought of as a generalization of the standard empirical framework, whereas the Oaxaca–Blinder model can be thought of as an extreme case. We propose a finite mixture model to explicitly model unobserved heterogeneity in individual characteristics and estimate the probabilities of being a discriminated or a non-discriminated worker. We illustrate this proposal by estimating wage discrimination in Germany and the UK.

Suggested Citation

  • Juan Prieto-Rodríguez & Juan Gabriel Rodríguez & Rafael Salas, 2020. "The Measurement of Wage Discrimination with Imperfect Information: A Finite Mixture Approach," Research on Economic Inequality, in: Inequality, Redistribution and Mobility, volume 28, pages 187-204, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:reinzz:s1049-258520200000028008
    DOI: 10.1108/S1049-258520200000028008
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    More about this item

    Keywords

    Wage discrimination; distribution of wage gaps; imperfect information; finite mixture models; D63; D83; J71;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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