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Statistical Discrimination in Labor Markets: An Experimental Analysis

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  • David Dickinson
  • Ronald Oaxaca

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 occurs when risk averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. Empirical work on statistical discrimination is hampered by the difficulty of obtaining suitable data from naturally-occurring labor markets. 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 in our full sample (though differences between male and female employers can be noted). If one can transfer these results outside of the laboratory, they indicate that labor market discrimination based only on first moment discrimination is biased downward. The public policy implication is that efforts and legislation aimed at reducing discrimination of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discrimination.

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File URL: ftp://repec.bus.usu.edu/RePEc/usu/pdf/ERI2004-04.pdf
File Function: First version, 2004
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Bibliographic Info

Paper provided by Utah State University, Department of Economics in its series Working Papers with number 2004-04.

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Length: 24 pages
Date of creation: 03 Jan 2004
Date of revision:
Handle: RePEc:usu:wpaper:2004-04

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  1. Davis, Douglas D., 1987. "Maximal quality selection and discrimination in employment," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 97-112, March.
  2. 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.
  3. 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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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
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Cited by:
  1. Drydakis, Nick, 2011. "Roma Women in Athenian Firms: Do They Face Wage Bias?," IZA Discussion Papers 5732, Institute for the Study of Labor (IZA).
  2. 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.
  3. Lionel Desiage, . "What are Entrepreneurs? Objectives When Starting a New Business?," Papers 2010-06, TEPP Working Papers.
  4. 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.
  5. Lionel Desiage, 2010. "What are Entrepreneurs' Objectives When Starting a New Business?," Working Papers halshs-00809716, HAL.
  6. 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.
  7. 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.
  8. 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).
  9. 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.
  10. 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.

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