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Statistical Discrimination in Labor Markets: An Experimental Analysis

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Author Info

  • Dickinson, David

    ()
    (Appalachian State University)

  • Oaxaca, Ronald L.

    ()
    (University of Arizona)

Abstract

Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). “First-moment” statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. “Second-moment” discrimination would occur when risk-averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. This paper reports results from controlled laboratory experiments designed to study second-moment statistical discrimination in a labor market setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk=variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2305.

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Length: 30 pages
Date of creation: Sep 2006
Date of revision:
Publication status: published in: Southern Economic Journal, 2009, 76 (1), 16-31
Handle: RePEc:iza:izadps:dp2305

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Keywords: experiments; statistical discrimination; labor markets;

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References

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  1. Lang, Kevin, 1986. "A Language Theory of Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 363-82, May.
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  3. Richard Startz & Lundberg, . "Private Discrimination and Social Intervention in Competitive Labor Markets," Rodney L. White Center for Financial Research Working Papers 19-81, Wharton School Rodney L. White Center for Financial Research.
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  8. Cornell, Bradford & Welch, Ivo, 1996. "Culture, Information, and Screening Discrimination," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 542-71, June.
  9. Goldberg, Pinelopi Koujianou, 1996. "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 622-54, June.
  10. Davis, Douglas D., 1987. "Maximal quality selection and discrimination in employment," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 97-112, March.
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  12. John List, 2004. "The nature and extent of discrimination in the marketplace: Evidence from the field," Natural Field Experiments 00299, The Field Experiments Website.
  13. David Dickinson & Ronald Oaxaca, 2005. "The Equivalence of Panel Data Estimators under Orthogonal Experimental Design," Working Papers 05-07, Department of Economics, Appalachian State University.
  14. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
  15. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-21, June.
  16. Fershtman, C. & Gneezy, U., 2000. "Discrimination in a Segmented Society: an Experimental Approach," Papers 2000-9, Tel Aviv.
  17. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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  20. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Discrimination (5): Statistical Discrimination
    by Filip Spagnoli in P.A.P.-Blog on 2010-07-24 08:39:28
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. David Masclet & Emmanuel Peterle & Sophie Larribeau, 2012. "The Role of Information in Deterring Discrimination: A New Experimental Evidence of Statistical Discrimination," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201238, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  2. Castillo, Marco & Petrie, Ragan, 2010. "Discrimination in the lab: Does information trump appearance?," Games and Economic Behavior, Elsevier, vol. 68(1), pages 50-59, January.
  3. Rödin, Magnus & Özcan, Gülay, 2011. "Is It How You Look or Speak That Matters? - An Experimental Study Exploring the Mechanisms of Ethnic Discrimination," Research Papers in Economics 2011:12, Stockholm University, Department of Economics.
  4. Magnus Rodin & Gulay Ozcan, 2013. "Is It How You Look or Speak That Matters? “An Experimental Study Exploring the Mechanisms of Ethnic Discrimination”," Working Papers 009, Bahcesehir University, Betam.
  5. Drydakis, Nick, 2011. "Roma Women in Athenian Firms: Do They Face Wage Bias?," IZA Discussion Papers 5732, Institute for the Study of Labor (IZA).
  6. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
  7. Lionel Desiage, 2010. "What are Entrepreneurs' Objectives When Starting a New Business?," Working Papers halshs-00809716, HAL.
  8. repec:tep:teppwp:wp1006 is not listed on IDEAS
  9. Caliendo, Marco & Künn, Steffen, 2012. "Getting Back into the Labor Market: The Effects of Start-Up Subsidies for Unemployed Females," IZA Discussion Papers 6830, Institute for the Study of Labor (IZA).
  10. Joshua Pitts & Daniel Yost, 2013. "Racial Position Segregation in Intercollegiate Football: Do Players become more Racially Segregated as they Transition from High School to College?," The Review of Black Political Economy, Springer, vol. 40(2), pages 207-230, June.
  11. Rödin, Magnus & Özcan, Gülay, 2011. "Is It How You Look or Speak That Matters? - An Experimental Study Exploring the Mechanisms of Ethnic Discrimination," SULCIS Working Papers 2011:3, Stockholm University Linnaeus Center for Integration Studies - SULCIS.
  12. David L. Dickinson & Ronald L. Oaxaca, 2012. "Wages, Employment, and Statistical Discrimination: Evidence from the Laboratory," Working Papers 12-03, Department of Economics, Appalachian State University.

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